Should I perform an APR comparison to decide who offers the lower rates and fees?

The Federal Truth in Lending law requires that financial institutions disclose the APR when they advertise a rate. The APR reflects the actual cost of obtaining financing plus some closing fees. In addition to the interest rate, these fees determine an estimated cost of financing over the length of the loan. Usually, most people end up refinancing at some point so it may be considered misleading to spread some of these up front costs over the entire loan term.

Unfortunately, the APR doesn't include all the closing fees. Lenders are allowed to decide which fees they include. Fees for things like appraisals, title work, and document preparation are not included even though you'll probably have to pay them.

For adjustable-rate mortgages, the APR can be even more confusing. Since no one can predict market conditions there will most likely be rate adjustments.

It’s best to use the APR as a guideline when shopping for a good rate but seek a loan that works for you. Keep in mind total fees and possible rate adjustments (in the case of an adjustable-rate mortgage). Also, consider the length of time you plan on keeping the mortgage (or figure you’ll refinance later to draw funds out or lower your payment if rates drop), and whether you will be staying in the same place for any length of time.

Keep in mind that the APR is an effective interest rate not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.