What is the difference between APR and my mortgage rate? This is one of the most common questions about the mortgage lending process. If you’re in the market for a home loan, it’s helpful to learn the difference between your mortgage rate and your annual percentage rate, or APR.
Let’s start with your mortgage rate. That’s the base rate you’ll be charged to borrow the money needed to buy your home. This is the rate that directly affects your monthly payment and the one you’ll want to brag about to all your friends.
Your APR, on the other hand, is the rate the federal government requires lenders to calculate and provide to consumers. It takes into account your interest rate and the costs required to process and close your loan. The idea behind APR is to help consumers more accurately compare rates among different lenders and loan products. For example, a home loan with closing costs may have the same APR as a loan with a higher mortgage rate but no closing costs.
Many first-time buyers are shocked at closing to see a higher rate than they had expected. But look carefully. At closing, you should see both your APR and your actual mortgage rate on your loan documents. Want to learn more about mortgage rates and APR? Check out this informative primer and infographic.