APR

· 2 min read
APR, or Annual Percentage Rate, is the true yearly cost of your mortgage expressed as a percentage — and it’s almost always higher than the…

APR, or Annual Percentage Rate, is the true yearly cost of your mortgage expressed as a percentage — and it’s almost always higher than the interest rate your lender quotes you. That gap exists because APR folds in origination fees, discount points, mortgage insurance premiums, and other closing costs the interest rate alone ignores.

How APR Actually Works

Your lender might advertise a 6.75% interest rate. Sounds decent. But once you add in $3,200 in origination fees, half a point in discount points, and a few hundred bucks in miscellaneous charges, your APR lands at 7.05%. That 0.30% difference on a $350,000 loan translates to roughly $18,000 in extra cost over 30 years.

The federal Truth in Lending Act (TILA) requires every lender to disclose APR alongside the interest rate. This makes it much easier to compare offers apples-to-apples. Two lenders might quote you the same 6.75% rate, but one has an APR of 7.10% and the other 6.95%. The second lender is genuinely cheaper.

Dollar Example

Say you’re borrowing $300,000 at 7.00% interest on a 30-year fixed. Your monthly principal and interest payment is $1,996. But your APR is 7.28% after rolling in $4,500 in fees. If you’d gotten a loan at a true 7.28% rate with zero fees, that monthly payment would be $2,052. The difference — $56/month — is essentially what those fees cost you spread over the loan’s life.

Watch Out

APR assumes you keep the loan for its full term. If you plan to sell or refinance in five years, APR can actually be misleading. Those upfront fees get amortized over 30 years in the APR calculation, but you’re only keeping the loan for five. In that scenario, a slightly higher rate with lower fees might save you money.

Also, APR doesn’t include homeowners insurance or property taxes. It’s not a total housing cost — it’s a total borrowing cost. Use our mortgage calculator to see the full monthly picture.

Frequently Asked Questions

Is a lower APR always better?

Usually, yes — but context matters. A lower APR that comes from paying $8,000 in discount points upfront only makes sense if you keep the loan long enough to recoup that cost. For a 5-7 year ownership timeline, compare total costs over that period rather than just APR. You can compare loan scenarios to see which deal actually wins for your situation.