More commonly called APR, Annual Percentage Rate is a government-mandated mortgage comparison tool. It measures the total cost of borrowing over the life of a loan into dollars-and-cents.

A loan’s APR is printed in the top-left corner of the Federal Truth-In-Lending Disclosure, as shown above. When quoting an interest rate, loan officers are required by law to disclose a loan’s APR, too.

APR is meant to simplify the process of choosing between two or more loans. The theory is that the loan with the lowest APR is the “best deal” for the applicant because the loan’s long-term costs are lowest. However, the loan with the lowest APR isn’t always best.

APR makes assumptions in its formula that can render it moot.

First, APR assumes you’ll pay your mortgage off at term, at never sooner. So, if your loan is a 15-year fixed rate, its APR is based on a full 15 year term. If you sell or refinance prior to Year 15, the math used to make your loan’s APR becomes instantly flawed and “wrong”.

Example: Let’s compare two identical loans in Florida — one with discount points and a lower interest rate; and one without discount points and a higher mortgage rate. The loan with discount points will have a lower APR in most cases. However, if the homeowner sells or refinances within the first few years, the loan with the higher APR would have been the better option, in hindsight.

Second, APR can be “doctored” early in the loan process.

Because the APR formula accounts for third-party costs in a mortgage transaction, and third-party costs aren’t always known at the start of a loan, a bank can inadvertently understate them. This would make the APR appear lower than what it really is, and may mislead a consumer.

And, lastly, APR is particurly unhelpful for adjustable-rate loans. Because the APR calculation makes assumptions about how a loan will adjust during its 30-year term, if two lenders use a different set of assumptions, their APRs will differ — even if the loans are identical in every other way. The lender whose adjustments are most aggressively-low will present the lowest APR.

Summarized, APR is not the metric for comparing mortgages — it’s a metric. For relevant comparison points, talk to your loan officer.

The FHA is insuring a greater percentage of loans than during any time in recent history. In 2006, it insured roughly 5 percent of the purchase mortgage market. Today, it insures one-quarter. ”Going FHA” is more common than ever before — but is it better?

The answer — like most things in mortgage — depends on your circumstance.

Like its conforming counterpart, an FHA-insured mortgage is available as a fixed-rate loan and as an adjustable-rate one. Payments are made monthly and come without prepayment penalties.

That’s where the similarities end, however, and decision-making begins. For homeowners and buyers across Marco Island , FHA mortgages carry a different set rules as compared to conforming loans through Fannie Mae or Freddie Mac that can render them more — or less — attractive for financing.

For example:

• FHA mortgages can be assumed by a subsequent buyer. Conforming loans may not.
• FHA mortgages require mortgage insurance, regardless of downpayment. Conforming loans do not.
• FHA mortgages do not have loan-level pricing adjustment. Conforming loans do.

FHA mortgages also require smaller downpayment requirements versus a comparable conforming mortgage. FHA calls for a minimum downpayment of 3.5%. Conforming mortgages often require 5 percent or more.

And, lastly, FHA mortgages are priced differently from conforming ones. Since 2005, the average FHA mortgage rate has been below the average conforming mortgage rate more than 50% of the time, meaning that an FHA mortgage’s principal + interest payment is lower than a comparable Fannie/Freddie loan.

Today, conforming mortgage rates are lower.

So, which is better — FHA loans or conforming ones? Like most things in mortgage, it depends. FHA-insured loans can be big money-savers or money-wasters. To find out which is best for you, ask your loan officer for today’s market interest rates and study the results.

With less than 20% equity, the answer is often clear.