The mandatory disclosure act of was done under the pretense of helping borrower understand the loan process. However the idea has hopelessly gone wrong. The idea was to require lenders to provide one uniform set of price disclosures that are consistent from loan to loan, and from lender to lender. Then consumers can compare prices across loan types and across lenders.

The APR was designed to be a shopping tool, but unfortunately it has serious flaws. While logic dictates that all upfront charges that a borrower would not have in an all-cash transaction should be included in the APR, this is not the case.

In addition, the APR is a number that can be skewed and played with from lender to lender. Some lenders include processing and underwriting fees and some don't. By excluding fees, the APR is lowered making the consumer feel they are getting a better deal.

Loans with PMI or Mortgage Insurance can be misleading when comparing APRs. When you purchase or refinance your mortgage, make sure you look over the TILA (Truth-in-Lending) when signing the disclosures to make sure your closing costs aren't weighing your APR out to be a lot higher than your actual interest rate you pay on your mortgage.

 

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