Clay Johnson: Hey guys, Clay Johnson here, and I’m here again with Cheryl Knowlton from Dynamite Productions. And we just wanted to cover a little bit more. We touched lightly yesterday on what is APR and what is TIP.
Cheryl Knowlton: Yeah.
Clay Johnson: Total interest pay. Tell us a little bit about those, Cheryl, and I’ll share a little story as well.
Cheryl Knowlton: Oh, I can’t wait to hear this story. Okay. So there are a couple of ways for you as a real estate professional to what we lovingly refer to is looking like an idiot. And that’s what we’re here to help you avoid. We want to help you be knowledgeable about going into your transactions so that you know what these things are. Annual percentage rate or the APR is not the same thing as the interest rate at which that mortgage is being amortized.
Clay Johnson: Yeah, and it’s funny because I think for a lot of people that are like the Coke recipe, you know what is [crosstalk 00:00:49].
Cheryl Knowlton: The Coke recipe, that’s awesome.
Clay Johnson: What is that? So in a short definition, it really is what are the costs of your closing costs if those are amortized over the loan. What does that look like and what does that do to your payment? It’s a way the consumer can really shop what the cost of that interest rate is and what that looks like.
So a lot of people, as you say, will go to closing and they’ll say, “That’s not the interest rate.”
Cheryl Knowlton: And they’ll freak out.
Clay Johnson: They’ll panic and then once you kind of walk them through it, now typically we’ll deal with that right upfront. But not everybody does. We’ve ever seen, I think we’ve both seen some real estate agents over time who did completely understand what the APR is.
Cheryl Knowlton: Oh, far too many.
Clay Johnson: Yeah.
Cheryl Knowlton: That won’t be you.
Clay Johnson: No it won’t. Then the other one is the total interest paid.
Cheryl Knowlton: Another great way for agents to look like absolute idiots and freak their clients out for no reason.
Clay Johnson: Yeah, the total interest paid really what they’re looking at is what is the percentage of the loan and interest that you’re going to pay over the lifetime of the loan.
Cheryl Knowlton: If they never ever made a single dollar payment.
Clay Johnson: Extra.
Cheryl Knowlton: Extra.
Clay Johnson: Yes.
Cheryl Knowlton: On any monthly payments.
Clay Johnson: Yeah.
Cheryl Knowlton: Yeah.
Clay Johnson: Now that one panicked me when I first [crosstalk 00:00:01:54].
Cheryl Knowlton: Right.
Clay Johnson: It wasn’t in that form, it used to show here’s the total amount you’re going to pay over the life of your loan. This is back when interest rates were 8% and I was buying $105,000 house and said like $289,000 and I thought I was going to have a heart attack.
Cheryl Knowlton: Right.
Clay Johnson: Yes.
Cheryl Knowlton: Like what is this number?
Clay Johnson: Exactly.
So this just really helps them clearly understand this is the percentage of interest you’re going to pa like you said if you’ve never paid anything extra.
Cheryl Knowlton: Absolutely.
So in closing, pull out a closing disclosure and you can get that by just doing a Google search for closing disclosure and you’ll be able to look at a sample one and make sure that you’re very familiar with all of the pages of that document. And you have any questions, reach out to us, reach out to your favorite title company, happy to walk you through that document so that you feel really solid about it.
Clay Johnson: Absolutely.
So until next time guys, we’re going to touch a little bit more on some additional things on-trend and we’ll see you then.
Cheryl Knowlton: See you then.