As a starting point, you should understand what an APR is and the limitations of using it as a measure of total loan cost. You can use each cost estimating method for purchasing as well as refinancing an existing mortgage. The federal government mandates that an annual percentage rate, or APR, be calculated for every mortgage. This applies to advertisements, loan quotes by lenders, and loan agreements. An APR is supposed to help consumers understand the full cost of a mortgage.
Federal regulations specify what goes into an APR as well as the accuracy of the calculation.
In general, an APR must include all financing costs that would apply if the consumer were to purchase the home using credit rather than cash. The key to using an APR is to think of it as a glove that should fit each borrower's exact circumstances. Remember that it's not necessary to understand the mechanics of how an APR is calculated to know if it's being done correctly. But you do need to know the variables. If these six variables are not accurate, the APR will be wrong for your situation.