Annual Percentage Rate (APR)
The annual percentage rate (APR) is the true yearly cost of your mortgage, expressed as a percentage. Unlike the interest rate alone, APR includes lender fees, discount points, and other costs rolled into the loan. APR is the best single number for comparing loan offers from different lenders.
A lender might advertise a 6.75% interest rate, but after adding origination fees, mortgage broker fees, and other charges, the APR might be 7.10%. That difference represents real money — on a $400,000 loan, the gap between a 6.75% and 7.10% true cost can mean thousands of dollars over the loan term.
APR is especially useful when comparing a low-rate loan with high fees versus a higher-rate loan with minimal fees. Federal law (the Truth in Lending Act) requires lenders to disclose APR on all loan offers, so you'll see it prominently on your Loan Estimate.
Keep in mind that APR assumes you keep the loan for its full term. If you sell or refinance in 5–7 years, a loan with higher upfront fees but a lower rate may actually cost more than the APR suggests. Always model your specific expected holding period when comparing offers.
Key Takeaway
The annual percentage rate (APR) is the true yearly cost of your mortgage, expressed as a percentage. Unlike the interest rate alone, APR includes lender fees, discount points, and other costs rolled into the loan. APR is the best single number for comparing loan offers from different lenders.
Related Terms
Frequently Asked Questions
The interest rate is the cost of borrowing the principal. APR adds lender fees and other costs to give you the full annual cost of the loan.
APR is better for comparing lenders. But if you plan to sell or refinance soon, focus on the interest rate and total upfront costs rather than APR alone.
Generally yes, but not always. A low APR achieved through high upfront fees may not be beneficial if you won't keep the loan long enough to recoup those costs.
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