Online mortgage shopping can mislead borrowers

Annual percentage rates make high-point loans look great

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Q: In shopping online, I have run into something puzzling. All of the mortgage shopping sites you recommend show different combinations of interest rate and points, and in every case, the Annual Percentage Rate (APR) is lower on loans with lower rates. The APR makes low-rate/high-point mortgages look like bargains. Are they? A: No, there are no bargains in this market. The APR is consistently lower on low-rate loans than on high-rate loans because it isn't calculated properly. That isn't the lenders' fault; they must calculate the APR using government rules. But the rules don't correspond to lender practice in pricing loans, or to borrower needs. Lenders price loans with different rates so that their net return on investment will be about the same. Suppose they offer a 6.375 percent loan at a price of zero, meaning there are no upfront loan charges. This is called the "par mortgage." Then on a 5.875 percent loan they are going to require an upfront payment that, combined with the 5.87...