Points refer to up-front interest lender may require on home loan

Q: I notice how many mortgage companies mention an interest rate and then an APR (annual percentage rate) a bit higher.

How is this annual percentage rate calculated? Is it simple or is it a computer calculation? Which rate would I really pay? -- R.T.

A: Let's say you take out a loan for which you'll be paying 4.5 percent interest every year.

But the lender also requires a bit of extra interest, just once, at the beginning.

If he wants you to pay an extra 2 percent of the loan up front, you're being charged two points.

In all, you're really paying slightly more than 4.5 percent.

How much more?

As you suspected, a computer is the best tool for calculating the true annual percentage rate.

Federal law requires it to be disclosed, so you can compare different loan offerings.

In practice, it mostly just confuses people. See the following letter.

About mortgage points

Q: I don't understand points. Is it just when you get a mortgage, or do you earn more every year as you make payments? -- email

A: Sorry.

Interest points won't do a thing toward free airline tickets.

Change brokers or price?

Q: Our house has been listed for sale since March at the price the broker recommended. Only two people have come to see our house and neither made an offer.

Should we list with another broker? What conclusions should we draw from our experience thus far? -- F.S.

A: Simple. Your price is too high.

No matter what other problems are present, the right price will cure them. It's more important to change price than to change brokers.

Your broker may have made a careful estimate of possible market value, but it is just an estimate.

The buying public is the best judge, and they have told you the price is not attractive.

You could hold the agent at fault, however, if you received no advice about dropping your price.

Edith Lank will respond personally to any question sent to www.askedith.com.