What is the difference between a mortgage interest rate and APR?
Short answer
The interest rate is the yearly cost of borrowing, expressed as a percentage, and does not include fees. The annual percentage rate (APR) is a broader cost measure that includes the interest rate plus points, mortgage-broker fees, and certain other charges. APR is usually higher than the interest rate.
Full explanation
The is the yearly cost you pay to borrow the money, shown as a percentage. It does not reflect fees or other charges. The APR is a broader measure of borrowing cost. The CFPB says it folds in the rate plus points, broker charges, and other amounts you pay to obtain the loan. For that reason, APR is usually higher than the interest rate. Fannie Mae describes the same distinction: APR is the effective yearly percentage when certain costs and fees are included, such as lender or broker fees, points, and other closing costs.
On a Loan Estimate, the interest rate appears on page 1 under Loan Terms, and the APR appears on page 3 under Comparisons.
Compare APRs with care. For an adjustable-rate mortgage, the APR does not reflect the maximum interest rate. Be careful when comparing a fixed-rate APR with an ARM APR, or when comparing different ARMs. Also be careful comparing a closed-end loan APR, which includes fees, with a home-equity line of credit APR, which does not. Do not use APR alone to choose a loan.
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What is the difference between a mortgage interest rate and an APR?
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