APR stands for annual percentage rate. It is designed to help borrowers understand the broader cost of borrowing by combining the interest rate with certain loan-related costs.
Interest rate vs. APR
The interest rate affects the monthly principal and interest payment. APR includes the interest rate plus certain fees and costs, expressed as an annual percentage. This is why APR is often higher than the interest rate.
Why APR matters
- It helps compare loan offers
- It reflects certain loan costs
- It may reveal the impact of points or fees
- It can help borrowers look beyond the advertised rate
What APR may include
- Interest rate
- Certain lender fees
- Discount points
- Mortgage broker fees, where applicable
- Some closing costs required to obtain the loan
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Why the lowest rate may not always mean the lowest cost
A loan with a lower interest rate may have higher upfront costs. A loan with a slightly higher rate may have lower closing costs. The better option depends on how long you plan to keep the loan, your monthly budget, and your financial goals.
Questions to ask when comparing APR
- What fees are included?
- Are discount points included?
- How long do I plan to keep the loan?
- What is my break-even point?
- How does the monthly payment compare?
- What are the total costs over time?
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Get StartedAPR calculations, fees, and loan costs vary by lender, loan type, borrower profile, property, and market conditions. Review official loan disclosures carefully.