The ANNUAL PERCENTAGE RATE and the interest rate difference
The Amount Financed is lower then the amount you applied for because it represents a net figure. If someone applied for a mortgage of $50,000 and their prepaid finance charges total $32,000, the amount financed would be shown as $48,000, $50,000 minus $2,000. The A.P.R. is computed from this lower figure, based on what your proposed payments would be. In a $50,000 loan with $2,000 in prepaid finance charges, and an interest rate of 14%, the payments would be $592.44 (principal and interest) on a loan with a thirty year term. Since the A.P.R. is based on the net amount financed, rather than on the actual mortgage amount, and since the payment amount remains the same, the A.P.R. is higher than the interest rate. It would be 14.62%. If this applicant's loan were approved he would still receive a $50,000 loan for thirty years with monthly payments @ 14% of $592.44.
