The interest rate is what you pay to borrow the money, and it sets your monthly principal and interest payment. The APR, annual percentage rate, is a broader measure that includes the interest rate plus certain loan costs, such as points and many lender fees, spread over the loan term. APR is a tool for comparing loans. It is useful, and it is also easy to misread.
What APR includes
APR includes the interest rate plus finance charges paid to get the loan, such as:
- Discount points.
- Origination and underwriting fees.
- Mortgage insurance, on most loans.
- Some other lender-required charges.
It generally does not include costs you would pay with or without a loan, such as the appraisal, title insurance, recording fees and property taxes. So APR is not your total cost of buying a home.
Why APR is always higher than the rate
Because it adds costs to the rate. A loan with very few fees has an APR close to its rate. A loan with points or large lender fees has an APR noticeably above its rate. When two loans have the same rate and different APRs, the one with the higher APR costs more to obtain.
Where APR misleads
APR assumes you keep the loan for its entire term. Almost nobody does. Spreading upfront costs over thirty years makes them look small in APR terms. If you sell or refinance in five years, those costs were spread over sixty payments, not three hundred sixty, and the loan with the lower upfront cost may be the better deal even with the higher APR.
APR on an adjustable-rate loan is also an assumption about future rates, not a forecast.
How to compare two loans properly
- Get Loan Estimates from each lender on the same day, for the same loan amount, program and lock period. See How to Read a Loan Estimate.
- Compare page 2, section A, Origination Charges. These are the lender's own fees and points. This is where lenders actually differ.
- Compare the rate.
- Compare the APR as a sanity check on the first two.
- Decide how long you will keep the loan, then add the upfront costs to the monthly payments over that period. The lower total wins.
Ignore third-party costs that the lenders estimated differently but that you will pay to the same title company regardless. And watch for lenders who quote a low rate that includes points they did not mention.
Quotes you see advertised
Advertised rates often assume perfect credit, a large down payment, a specific property type and points. Federal rules require advertisements that state a rate to disclose the APR alongside it, which is one quick way to see whether points are hiding in a quote. Your rate depends on your file. See How Mortgage Rates Are Set.
Why ask me
- I answer the question before I sell you anything. If renting, waiting or a different program is the better move, I will say so.
- Real numbers, not a calculator guess. I price your actual scenario, side by side, with the fees on the page.
- Every program under one roof. Conventional, FHA, VA, jumbo, and non-QM options like bank statement, DSCR and asset-based loans, so the program fits you instead of the other way around.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
More plain-English answers in the Mortgage Education library.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Program guidelines, eligibility requirements and documentation standards vary by investor and change over time. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify. This is not legal or tax advice; consult a qualified professional about your own situation.
Find out which program actually costs you less
FHA, conventional and jumbo price the same borrower very differently once the mortgage insurance is compared across the years you will own the home. Tell me the shape of your file and I will run them side by side.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
