FACT: Any borrower who pays closing costs on a mortgage and then makes less than 360 payments actually pays a higher APR than what we disclose to them even though we disclosed it properly.

The assumption inherent in all APR calculations is that the borrower will make all of the scheduled payments for the entire term of the loan. This significantly minimizes the affect of closing costs on the APR and understates the true APR for any borrower paying closing costs and paying off their loan early.

The truth is that closing costs are really far more costly to the average borrower than the Truth in Lending disclosure would lead them to believe.

This is vital information that you should be conveying to your borrowers since the chances of them making all 360 payments are so remote. Your job is to be able to explain this to your borrowers in order to do right by them and further set yourself apart from the competition.

Tomorrow we will look at the numbers and then later we will look at how to calculate the real numbers...