An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.
If you have 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,” and the APR on page 3 under “Comparisons.”
Tip: Take care when comparing loan options to be sure you understand any differences between the terms being offered:
- Take care when comparing the APRs of adjustable-rate mortgage loans. For adjustable rate mortgage loans, the APR does not reflect the maximum interest rate of the loan.
- Be careful when comparing the APRs of fixed-rate loans with the APRs of adjustable-rate loans, or when comparing the APRs of different adjustable-rate loans.
- Be careful about comparing the APR of a closed-end loan, which includes fees, to the APR of a home equity line of credit, which doesn’t. Don’t look at the APR alone in determining what loan makes the most sense for your circ*mstances. Look at this explainer for an example of how interest rates and APRs differ for adjustable rate loans.
FAQs
A loan's interest rate is the cost you pay to the lender for borrowing money. The Annual Percentage Rate (APR) is a measure of the interest rate plus the additional fees charged with the loan.
What is the difference between mortgage interest rate and APR? ›
What's the difference? APR is the annual cost of a loan to a borrower — including fees. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees such as mortgage insurance, most closing costs, discount points and loan origination fees.
What is the difference between interest rates and mortgage rates? ›
The interest rate on a mortgage indicates how much interest you'll pay for the amount you borrow. The annual percentage rate (APR) is the interest rate plus additional fees and any points. Interest rates are influenced by factors such as your credit score, the lender you work with, inflation and the broader economy.
What is the difference between APR and simple interest rate? ›
So, while APR can be used for comparison purposes, it cannot be used to calculate the amount of interest you'll pay. Simple interest rate, on the other hand, is the interest you pay your lender on top of the amount you actually borrow. The simple interest rate is a fixed percentage of that lump-sum amount.
What is the difference between APR and ARP? ›
For example, if there are no fees and the rate is fixed, the ARP will equal the rate. APR is a way to show you how much it costs to borrow money at your given interest rate with the particular closing costs and fees associated with a mortgage loan.
What is the difference between the interest rate and the APR quizlet? ›
APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. Simple interest is when the interest on a loan or investment is calculated only on the amount initially invested or loaned.
What's the difference between interest rate and APY? ›
APY represents the amount of money you will earn on your deposits over the course of a year, taking into account compound interest. Interest rate, on the other hand, is the percentage at which your money will accrue interest, without considering compounding.
What is the APR on a mortgage today? ›
Current mortgage and refinance interest rates
| Product | Interest Rate | APR |
|---|
| 30-Year Fixed Rate | 7.00% | 7.04% |
| 20-Year Fixed Rate | 6.77% | 6.82% |
| 15-Year Fixed Rate | 6.46% | 6.53% |
| 10-Year Fixed Rate | 6.33% | 6.40% |
5 more rowsAnnual Percentage Rate (APR) is the interest charged for borrowing that represents the actual yearly cost of the loan, including fees, expressed as a percentage. A purchase annual percentage rate (APR) is the interest rate that credit cards charge on new purchases if you don't pay your balance in full first.
Are mortgage rates higher than interest rates? ›
The interest rate on your mortgage is usually much higher than Bank Rate.
The APR for an ARM will sometimes be lower than the interest rate. This can happen in a declining interest rate environment when lenders can assume in their advertising that your interest rate will be lower when it resets than when you take out the loan.
What is the difference between APR and fixed interest rate? ›
A flat rate is based on the original amount borrowed, but APR will only take into consideration what remains. As a flat rate stays the same throughout the life of a loan you will not see your repayments go down.
What is the difference between annual interest rate and simple interest rate? ›
Interest is the cost of borrowing money, expressed as a percentage of the total amount of the loan. Simple interest is an annual percentage of the amount borrowed, referred to as the annual interest rate. Compound interest is based on the sum of the principal amount and the previous interest payments on it.
What is the difference between mortgage rate and APR? ›
An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.
What is effective interest rate vs APR? ›
Since APR includes your interest rate and other fees connected with your loan, your APR will reflect a higher number than your interest rate. You can also consider APR to be your effective rate of interest. Thanks to the Truth in Lending Act (TILA), your lender must tell you both your interest rate and your APR.
What is ARP in mortgage? ›
Copy link to clipboard. The annual percentage rate (APR) is the amount of interest on your total mortgage loan amount that you'll pay annually (averaged over the full term of the loan).
Is it better to have a lower interest rate or lower APR? ›
The APR, however, is the more effective rate to consider when comparing loans. The APR includes not only the interest expense on the loan but also all fees and other costs involved in procuring the loan. These fees can include broker fees, closing costs, rebates, and discount points.
What is a good APR on a 30-year mortgage? ›
Current mortgage and refinance rates
| Product | Interest Rate | APR |
|---|
| 30-year fixed-rate | 6.712% | 6.794% |
| 20-year fixed-rate | 6.250% | 6.361% |
| 15-year fixed-rate | 5.974% | 6.104% |
| 10-year fixed-rate | 5.686% | 5.857% |
5 more rowsAPR is a tool that lets you compare mortgage offers that have different combinations of interest rates, discount points and fees. Comparing APRs is most useful when you plan to keep the loan for more than five or six years. That's because the APR calculation assumes that you'll keep the loan for its entire term.
What is a good APR for a loan? ›
Avoid loans with APRs higher than 10% (if possible)
According to Rachel Sanborn Lawrence, advisory services director and certified financial planner at Ellevest, you should feel OK about taking on purposeful debt that's below 10% APR, and even better if it's below 5% APR.
