Annual Percentage Rate (APR)
The Annual Percentage Rate is a broader measure of the cost of borrowing that includes your interest rate plus certain lender fees, expressed as a yearly percentage.
APR was created to give borrowers a standardized way to compare loan offers from different lenders. It factors in costs like origination fees, discount points, and certain third-party charges — which is why APR is typically higher than the note rate.
APR is a useful comparison tool, but it is not the only number that matters. It assumes you will keep the loan for its full term, which most borrowers do not. If you plan to sell or refinance within a few years, the note rate and total closing costs may be more relevant to your decision.
Why This Matters: Comparing APR across lenders can help you identify which loan truly costs less over time — but only if you understand what is and is not included in the calculation. Both numbers appear on your Loan Estimate. Learn how to read your Loan Estimate for a full breakdown.
Common question
Why is my APR higher than my interest rate?
APR includes your interest rate plus certain lender fees (like origination and some third-party costs), expressed as a yearly rate. That is why APR is typically higher than the note rate.
Should I compare rate or APR when shopping for a loan?
Both matter. APR helps you compare total cost across lenders. If you plan to sell or refinance within a few years, the note rate and total closing costs may be more relevant than APR.
Related Topics
Related Mortgage Terms
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