What Is APR?
APR is the annualized cost of a mortgage expressed as a percentage, combining the interest rate with certain lender fees and closing costs — making it useful for comparing the total cost of different loan offers.
Advanced Explanation
APR expresses the cost of credit as a yearly rate that includes the note rate plus certain finance charges (for example points and some lender fees), as defined for disclosure under the Truth in Lending Act (Regulation Z). Because those charges are spread over the full loan term, APR comparisons assume the loan is kept to maturity; it is not the rate used to compute the monthly payment.
Example
A loan with a 6.5% interest rate but $4,000 in upfront fees might carry a 6.75% APR once those fees are factored in.
Why It Matters
Two loans with the same interest rate can have very different APRs depending on fees, so APR is often a better way to compare offers than rate alone.
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