APR vs. Interest Rate: What it Means and How it Affects Your Mortgage

The primary fee that you are charged to borrow money/take out a loan is called the Interest Rate. It's one of the main factors in determining your monthly payment. APR, however, takes it a step further and not only includes the interest rate but also accounts for other relevant fees such as closing costs.

APR vs. Interest Rate

Get right to the heart of the matter in our latest “Lender Series” video. Understanding the differences with APR (Annual Percentage Rate) and interest rates as they pertain to making payments on a home can go a long way in figuring out what is affordable.

What to Know about APR

• Your monthly payment is NOT based on APR.
• APR is the annual cost of the loan but also includes fees like mortgage insurance, discount points, loan origination fees, closing costs, etc.
• APR can be considered a “true” indicator of the cost of the loan.

What to know about Interest Rates

• Interest rate is the fee (expressed as a percentage) that the lender charges to borrow money.
• Interest rate is usually lower than the APR because it does not include broker fees and other charges.

Other things to Remember

Generally, when looking at loan estimates between different lenders, third party fees should be similar. This is why it's important to compare APR when shopping because the differences in APR can help flesh out/expose critical differences in broker fees, such as discount points, between those lenders.