In this example the APR would be calculated at 7.20 percent. Although required by law, the APR is the subject of much controversy in the lending industry. Many claim that there is a fatal flaw in the whole calculation process. The APR formula includes certain loan costs that are payable by the borrower in connection with the loan. In fact the life of nearly all loans is much less than that.
Many people sell their home or refinance their loan after a few years.
Johnson goes on to point out that consequently shopping for the lowest APR offered by a lender or broker really doesn't make any sense. However, to use the APR formula for a 30-year loan that may be on the books for five to seven years makes no sense at all. The law, however, requires that the APR figure be disclosed. This is so even though it will not affect your monthly payment, and the interest rate you pay is the note rate of your loan. The reason this came up at all was because it was felt, at the regulatory level, that some lenders and brokers were not disclosing all involved fees to borrowers, which was true.