Annual Percentage Rates
One method to compare loans with different points is to use the Annual Percentage Rate (APR), which lenders must disclose to borrowers under federal law. The APR can be misleading, however, as its method of calculating the cost of a loan as a yearly rate assumes that the loan will not be paid off until the loan term ends. While most loans are for 30 years, people generally pay off their loans before the loan term ends because they either move or refinance sooner. Also, different lenders have various ways of calculating costs included in the APR, so that a loan for the same dollar amount and number of points may have different APRs with different lenders.
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