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APR Versus Interest Rate: Which Matters More

What’s the difference between a mortgage’s interest rate and its annual percentage rate, and does it make sense to take a higher-APR loan if its interest rate is lower? Click through to find out.

You’re shopping for the most affordable mortgage loan. What number is more important, your loan’s interest rate or its annual percentage rate (APR)?

Not surprisingly, both numbers are important. But your APR is a better look at the total cost of your mortgage loan.

Many borrowers focus solely on the interest rates lenders quote them when they’re searching for a mortgage. But APR gives a more complete picture of how much you’ll pay for a mortgage.

APR doesn’t just include your interest rate. It also includes the closing costs/settlement fees that lenders charge. APR includes your lender’s mortgage origination fees, any discount points you are buying to lower your interest rate, mortgage insurance, and other costs of closing a mortgage loan.

Because of this, your loan’s APR will always be higher than its interest rate. You should always compare the APRs of different loans when searching for the most affordable mortgage. A loan with a lower interest rate could still cost you more if its APR is higher.

Your lender is required to disclose your loan’s APR. You’ll find it on the loan estimate you’ll receive from lenders when you get pre-approved for a mortgage.

Have questions about mortgage costs, interest rates, and APRs? Call us. We’re happy to share our knowledge with you.

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