Mortgage
The Ideal Mortgage Paves the Way to Your Dream Home.
What is the difference between a mortgage interest rate and an APR?
An annual percentage rate (APR) reflects the mortgage interest rate plus other charges.
There are many costs associated with taking out a mortgage. These include:
- The interest rate
- Points
- Fees
- Other charges
What is a mortgage interest rate?
The interest rate represents the annual cost of borrowing money, expressed as a percentage. It does not include fees or additional charges associated with the loan.
What is a mortgage APR?
Lenders determine the amount you qualify to borrow based on their lending criteria, but this may not align with what you can comfortably afford. Online calculators provide similar estimates by comparing your income and debts. However, loan qualification differs from affordability, which depends on your full financial picture. Since lenders do not account for all your personal and family expenses, it’s essential to evaluate your income, spending, and financial priorities to determine a manageable monthly payment that fits within your budget.
An Annual Percentage Rate (APR) provides a more comprehensive measure of borrowing costs than the interest rate alone. The APR includes the interest rate, along with points, mortgage broker fees, and other loan-related charges. As a result, the APR is typically higher than the interest rate.
If you’ve applied for a mortgage and received a Loan Estimate from one or more lenders, you can find:
- The interest rate on page 1 under “Loan Terms.”
- The APR on page 3 under “Comparisons.”
Key Considerations When Comparing Loan Options
- When evaluating adjustable-rate mortgages (ARMs), remember that the APR does not reflect the maximum possible interest rate.
- Use caution when comparing the APR of fixed-rate loans to adjustable-rate loans, or when comparing different ARMs.
- Be mindful of differences between a closed-end loan’s APR, which includes fees, and the APR of a home equity line of credit (HELOC), which does not.
APR is just one factor in selecting the best loan for your situation. Be sure to assess all loan terms and costs to understand how interest rates and APRs differ for adjustable-rate loans.