When understanding what the APR, or annual percentage rate is, it’s important to understand how it compares to the interest rate you’ll pay for your mortgage. The interest rate is the percentage you will pay to borrow the money for your home. This rate does not reflect fees or any other charges associated with the loan, but calculates what your actual monthly mortgage payment would be. The interest rate you pay depends on factors like your loan type and credit score.
The annual percentage rate reflects the true and total cost of the loan. It factors in the interest rate plus any upfront costs and fees that are charged by the lender to obtain that rate or to close the loan, such as points, fees, or other costs associated with the loan.
The annual percentage rate, usually shown next to the advertised and called “APR”, or nominal, interest rate, is always higher than the actual, or effective, loan interest rate because it annualizes the fees and costs associated with the loan. These fees and costs that may be bundled into the annual percentage rate are the origination fee, discount points, closing costs and the cost of insurance premiums.
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VP of Mortgage Lending
Lending Leaf Co