Talk:Annual percentage rate

From VfD:

Dictionary definition that looks like it was written by someone who doesn't understand what he's defining. - Kenwarren 02:10, Jul 26, 2004 (UTC)

• I'd like to withdraw my nomination for deletion, considering how much cleanup it's undergone. The article perhaps isn't my brand of encyclopedic, as it goes off on several tangents from the title of the article, but it's certainly nowhere near useless. - Kenwarren 03:28, Jul 27, 2004 (UTC)

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• Delete: Seems to be trying to do a car loan discussion, misnamed. Geogre 03:12, 26 Jul 2004 (UTC)
  • Keep rewrite. Geogre 16:03, 28 Jul 2004 (UTC)
• Delete. Spectatrix 06:20, 2004 Jul 26 (UTC)
• Delete and lower my APR while you're at it. - UtherSRG I still want my APR lowered... keep. - UtherSRG 15:16, 27 Jul 2004 (UTC)
• Keep. Send to Clean-Up. Concept is real and could be expanded upon. Article is salvagable. Rossami 23:39, 26 Jul 2004 (UTC)
• Keep, good clean up in progress by Rossami. --Sideshow 02:47, 27 Jul 2004 (UTC)
• Agree with Rossami and like the improved version. Keep. Ianb 05:58, 27 Jul 2004 (UTC)
• Keep. Looks pretty good. - Eisnel 06:42, 27 Jul 2004 (UTC)

end moved discussion

Loan retention assumption

user:GraemeL and user:Chuck1962 (who is presumably the same as the anon editor user:136.2.1.103) have been repeatedly inserting and deleting the text below. Rather than continuing the revert war, let's discuss the proposed addition here for a while and see if we can work out the objections and concerns. Rossami (talk) 17:43, 8 September 2005 (UTC)

Loan retention assumed to equal loan pay-back period
Another problem with the APR calculation is the assumption that an individual will keep a particular mortgage loan until it is completely paid off resulting in the up-front fixed closing costs being amortized over the full term. The usual pay-back periods are 30 and 15 years but how many people keep the same mortgage that long? Not many, because the odds someone will either refinance or move before the loan is paid off are very high. Computing the APR over the full loan term deflates the apparent cost of the loan, making it harder to decide if it truly makes sense to refinance an existing mortgage. An APR calculator should allow the user to enter a loan retention period or time-in-loan period to more fully gauge the cost of the up-front fixed closing costs.

• A mortgage APR calculator that solves Loan Retention Problem mentioned above.

• The reason I was reverting the edits was that I considered them linkspam. The anon user was linking to an individual realtors site and the page was very broken on anything but Internet Explorer. There also seem to be links to working APR calculators already and I don't think the article benefits from having more of the same. I think I remember adding a spam1 to the talk page of the user/anon IP and also commented on the page being broken. Putting this on watch to follow the discussion. --GraemeL ^(talk) 17:56, 8 September 2005 (UTC)

Chuck1962 Responds

I would like to thank GraemeL and Rossami for the warm welcome they have given me on my first attempt to contribute content to wikipedia.org! Yes, you were right, I am a spammer of the most monstrous proportions (a realestate agent's website from Ann Arbor, Michigan might make spam fodder out of about 0.045% of your user base!) Hell, I don't even own a bank so where did I get off thinking I could educate others in the arcane world of Annual Percentage Rate calculations! My proposed changes just don't add up to the high standards of the commercial links already on the page that are being given a free pass(http://www.mortgages-loans-calculators.com/calculator-mortgage-apr.asp)! I especially liked the trudging through the instructions from the OCC to download and try their APR calculator. Hell, after about 15 minutes I was actually able to run their bloated, over-engineered product and conclude that it didn't address the issues you so generously censored from my edits!

The comments from GraemeL were particularly fun and just filled me with warm fuzzies. For example, GraemeL claims that my lame website doesn't support non-windows browsers but fails to mention that the APR calculator at www.mortgages-loans-calculators.com assumes a java plug-in that is geared toward Windows IE and may not be readily avaliable on non-Windows browsers (It wouldn't run on my version of Mozilla.) He also claims the good folks at wikipedia.org don't need another APR calculator (GraemeL's non-myopic, penetrating, well researched views are o-so appreciated---I'm sure he's had to spend plenty of time trying to compare different rate and closing cost combinations from different lenders on his mortgages!)

The fact of the matter is that my APR calculator was written with the needs of mortgage borrowers in mind because I personally have run into the problems my calculator seeks to solve. Check it out for yourself, most of the APR calculators on the web are offered by Lenders or Mortgage Brokers; that is, people who are trying to sell you a loan. Furthermore, I have yet to find another APR calculator that lets one select a loan retention period shorter than the loan term. This feature allows one to find out what the pay-back period for the closing costs is or if it makes sense to re-finance an existing mortgage.

I will end by pointing out that the over-all jist of the APR calculation article is to not simply define its most prominent feature, but to place heavy emphasis on the real and serious shortcomings of it from a consumer point of view. The over-all direction of the article is pro-consumer information anyone involved in securing a mortgage will inevitably become caught-up in. My additions most certainly strengthen that direction and would certainly be appreciated by someone looking to either re-finance or purchase a home.

All of the testing I did was under Windows. Your page renders correctly under IE, but the images are all broken on the three other browsers I tried. This is probably something to do with the HTML as your server appears to be sending the correct MIME type for them. I would normally do enough digging to present you with a fix for your problem, but the use of frames has been depreciated for several years and I would have to re-learn the markup.

You have a fair point in that Java is no longer installed by default on Windows machines and that particular link may present problems with people having to go through the install of Java to get it to work. However, Java is available for pretty much every platform that I have worked with, so people not using Windows shouldn't have problems accessing it.

Would suggesting that you supply a link directly to the calculator (framed or unframed) rather than the home page help to bring this dispute to a conclusion? --GraemeL ^(talk) 12:36, 9 September 2005 (UTC)

Copied from User talk:Chuck1962

Good evening. I'm sorry that you took my comments as hostile. I actually don't have strong feelings one way or the other about the addition you proposed. I merely would prefer that the dispute be resolved through discussion. On Wikipedia, that generally happens better and more completely when we discuss concerns on the article's Talk page than when we make competing edits to an article. When two editors acting in good faith start repeatedly undoing each others' edits without explanation, we call that a revert war.

I certainly understand your comment about the weaknesses of some of the existing links in the APR article. I may have even been the one who added that link in an early draft of the article. Corrections or improvements are always welcome. We do tend to defer to "impartial" sources because we've had problems in the past with wikispam. The OCC's APR calculator may have lots of shortcomings but no one can accuse them of having an ulterior motive. If you know of a source for a better traditional APR calculator, I for one would encourage you to replace the OCC link.

I also think I understand your comment about the shortcomings of the traditional APR calculation. It's an interesting correction. Can you provide an independent source for your analysis. The difficulty that we run into is that Wikipedia has a strong policy against original research. We've found that to be an essential control in our quest to stay true to our goal - the creation of an encyclopedia. (Note that the proscription against original research is not what many people assume from the name. I encourage you to read the full article.) If this is your personal analysis and original thought, our policy says we can't keep it in the article. On the other hand, if you can provide an independent citation for your analysis, then it is probably appropriate to keep in.

Lastly, I would encourage you to be patient with folks like GraemeL. Wikipedia really does have problems with serious spammers and we depend on folks like him to volunteer to patrol and keep them out. They see so much abuse that sometimes it's hard to remember to assume good faith. When mistakes happen, though, we can generally work them out through discussion. Thanks for your patience. I hope you stay and continue to contribute. Rossami (talk) 04:26, 9 September 2005 (UTC)

I'll cite as my sources the text book "Principles of Engineering Economy", 8th Edition by Grant/Ireson/Leavenworth, ISBN 0471-63526-X; copyright 1990 by John Wiley & Sons, Inc. Also, the existing link on the APR page for efunda (ie, http://www.efunda.com/formulae/finance/apr_calculator.cfm). The method is pretty standard for calculating an effective interest rate from a series of debits and credits (the cash flow diagram.) I learned this method in a graduate level course on engineering economics. Believe it or not, it takes one or two semesters of college calculus to understand the solution to the interest rate problem because no closed form solution is avaliable and numerical methods must be used.

While the method for calculating the effective rate of the loan is standard, the fact that I am offering a calculator that lets the user effectively select the payback period for the closing costs is unique. I say this because I have trolled the net looking for something like this and have been unable to find another site. I would hope that this fact does not exclude this contribution since it is a mathamaticly verifiable fact that paying off a mortgage sooner than the original loan period will increase the effective APR if closing costs were paid at the loan origination (precisely the thing I was taught to do in my class.)

Here is a real-world example of how my mortgage calculator could help both an honest loan officer or broker and a consumer. Say a young professional is living in a condo with a 30-year, $150,000 mortgage at 6%. Now say the loan agent at the bank where the loan was originated two years earlier wants to sell a new loan at 5.75% with $2000 in closing costs. The question is, does it make sense for the borrower to agree to the new loan? The answer hinges on how long the borrower plans on staying with the current mortgage. The full-term APR is 5.8721% but the four year APR is 6.1314%. The borrower in this case would have to keep the new mortgage for at least 81 months or six years and nine months to realize a savings which is not very likely given the fact that condo owners tend to not stay in the same location for more than five years. An honest lender would realize this and wait for interest rates to fall further before making the sales pitch but a dishonest lender would hype the full-term APR to try and close the deal.

If you look at my last edits, you will see that the link goes directly to the mortgage calculator and not the home page for my wife's site. I hope this helps!

Chuck1962

Thanks for keeping on top of this Rossami, I do try to assume good faith and often pass over removing links where I'm in doubt over the intentions. This one ,originally going to the home page, just struck me as an attempt at linkspam. That said, Chuck1962's last edit (the one that you reverted) seems like a link that I would have no problems with. The link was direct to the calculator (http://www.aysel.com/mortgage.php).

To chuck; If you have the time and inclination, you may want to re-write the pages on the site to remove the frames and include the navigation on each page. This would allow you to link straight to the calculator, but still leave the site navigation links visible. --GraemeL ^(talk) 14:17, 12 September 2005 (UTC)

A Small Point concerning RESPA

a small point: it is a violation of RESPA for a lender to require a borower to use a specific closing agent (attorney or title agent or otherwise) It is a small distinction but technically it is against the law to REQUIRE it. Lenders will usually assume that you are willing to work with their preferred closing agent it is true. Thanks - Ryan

More please

I'd like to see some more formulas and examples on the main page for this subject. I'd always assumed that APR was what would end up outstanding on a borrowed/lent sum at the end of a year but it seems that what I was thinking of was the "effective annual rate". It appears that if you borrow money at 10% APR, you pay differently if the interest is calculated annually, monthly, or weekly. I am pretty strong mathematically but this all seems a bit odd to me. I think this is something that Wikipedia could really make a strong contribution to clarifying for people. Pictures would be nice :)

You're thinking of compounding of interest which is generally not applicable (at least in the US). Interest is rarely, if ever, capitalized on consumer loans and so an interest only loan that pays DAILY will pay the same in a year as an interest only loan that pays annually (just to illustrate the extremes). APR is an attempt to provide an illustration of the impact of fees versus rate on the amount paid by the borrower. --Laxrulz777 22:01, 28 August 2006 (UTC)