On a fairly regular basis my phone rings and I have a potential borrower ask me: "What is your current APR?" This is an excellent question and the answer is complicated. There is no one answer.
First things first, I think it is important to define APR. The APR is a calculation that is the creation of the Federal Government so that consumers may compare different loan products and lending institutions to learn what the lowest cost transaction offered might be. To be absolutely clear:
THE APR IS NOT THE SAME AS THE INTEREST RATE
The APR is a number that is calculated using the offered interest rate plus some finance costs such as discount points, upfront mortgage insurance, monthly mortgage insurance, and expresses the number as a percentage for 12 months. There now, that clears it up, doesn't it?
One of the best definitions that I have found for APR is from bankrate.com and it is as follows: A standard calculation used by lenders. It is designed to help borrowers compare different loan options. For example, a loan with a lower stated interest rate may be a bad value if its fees are too high. Likewise, a loan with a higher stated rate with very low fees could be an exceptional value. APR calculations incorporate these fees into a single rate. You can then compare loans with different fees, rates or different term.
In a perfect world this would be an excellent method of comparison. But in practice what I find is that each individual has specific needs with regards to their mortgage financing. If you put 10% down your APR will be lower since you are not financing as much as the person who puts 5% down-and 5% may be all that one borrower has to put down-so comparisons with other types of loans may be moot. Or a borrower's credit profile may qualify them for an FHA loan and not a conventional loan so the fact that the APR on the conventional loan will be lower is meaningless.
The APR on a VA or FHA loan will always be higher than a conventional loan because both of those loans have upfront mortgage insurance or funding fees that are rolled into the loan amount. The conventional loan does not. This does not mean that a conventional necessarily the best loan for everyone. In many cases it is not.
So-to sum it up if you call me to find out what the APR is I will need to know what type of loan you are considering, how much you wish to put down. the purchase price of the property, and the interest rate on that particular day. (SInce interest rates are affected by credit scores I may need that data as well.) I will also need to know if the caller wishes to pay points to lower the rate, and the term of the loan. All of these specifics affect the APR. When comparing the APR from one lender to another it is imperative that the comparison be made apples to apples and not apples to bananas. In other words, you need to know what you are looking at to make the best decision. Typically, I don't give an APR over the phone. I collect all the data that I need, put the loan information together, and then I can calculate the APR and make a presentation to the potential borrower encompassing all the facts involved in my recommendation with regard to the calculation.
P.S. Please don't ask me to calculate APR manually. I did know how to do that once in order to pass a Mortgage Loan Originator's exam, but that information has disappeared into the vast wastes of past time. To be entirely accurate I need my trusty computer.
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