Decoding Page 3 of your LE

This article will dive into page 3 of the Loan Estimate, which includes additional information about your loan and will confirm your lender/broker’s contact information as well as their license information.

Annual Percentage Rate (APR)

APR is widely recognized by the financial service industry as one of the best ways to calculate total costs of financing (borrowing or taking out a loan) because it only takes into consideration lender-specific origination costs. It does not include third-party fees in its calculation. The APR reflects the interest rate, any points, mortgage broker fees, mortgage insurance and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

It is important to ensure that APR is being calculated and disclosed accurately 100% of the time due to regulatory and consumer experience purposes.  Here are some tips for comparing lender Loan Estimates using APR:

• You can use APR to compare the same base interest rate and the same loan term/structure (Fixed interest rate and loan terms defined on page 1, section A of the Loan Estimate) across multiple lenders. APR will incorporate all lender specific fees, including the costs of paying Mortgage Insurance (when Down Payment is less than 20%)
  • If two lenders are offering the same rate for the same loan term, loan amount, and purchase price, the one with the lower APR has the lower costs.
• If the mortgage you are seeking is required to have Mortgage Insurance (MI), APR is the best indicator of the best option (all else equal) because this calculates the cost of MI over the life of the loan for you.

Other Considerations

This section is fairly standard (post-2008 most of these documents are restricted and fixed due to regulatory frameworks) across all conventional mortgages. 

Make sure to look at the Assumption Section, when reviewing your Loan Estimate. This displays whether or not the lender plans, with good faith, to service your mortgage after closing. 

If the lender plans to sell the mortgage with the servicing rights after closing, this box must be checked and you should plan to make monthly mortgage payments to a different company than your original lender. 

Even if the section is checked as Yes, the lender can sell or transfer these servicing rights after a certain amount of time (rule of thumb is 3 years), and it is nearly impossible to know when or if this will happen.