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today is November 2014 and this comes from the state of Illinois, US

I have received a mortgage preapproval letter that contains the following clause:

The type of loan chosen is FNMA Agency 30 Yr Fixed. The term of the loan is 360 months and the interest rate prequalified for (not locked) is 3.990% with an estimated APR of 4.296%.

Question 1:

It is confusing about the rates. I learned about compounding and the difference between APR and APY. Is this the same deal ? It does not seem so since APY is always greater than APR and what is quoted in my preapproval has higher APR.

Question 2:

I google mortgage rates for Chase and Bank of America for example. Here is what they are:

Bank of America:

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Chase:

enter image description here

From these quote we see that the difference between rate and APR are 0.104% and 0.114% (quite close) whilst the differences in my preapproval letter is 3 times higher 0.306%

Is my lender taking me for a ride ? It appears to me as a red flag. What does my lender do differently. Please help me to interpret this.

  • 1
    I would prequalify with either of the lenders above and see what the actual rate and APR are for your situation. It might be your credit and credit history that is giving you a higher rate. Some lenders may match another lender's rate if that is your only determining factor (given you have a prequalification or preapproval). APR is essentially the closing costs,points, PMI, loan fees, etc. of the loan accounted into your monthly payments . It's supposed to be an easier way to compare costs between different lenders - that's all it is. Savings APR vs Mortgage APR are different things. – BLaZuRE Nov 22 '14 at 17:49
  • Ill tell you right now never go to a large bank for a mortgage. Get two mortgage brokers and see what the best deals they can get for you. The giant monster mega banks don't want your business and they show it by their rates and fees. – Mark Monforti Nov 22 '14 at 21:07
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Your APR is the annual percentage rate. This includes the interest on the actual loan (the rate) plus fees like PMI, etc. The reason that FNMA loans have a higher APR spread is because there are extra fees with them because they are riskier loans to make. Many of these loans went bad in the 2008 real estate collapse.

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