Rates and A.P.R.

A common misunderstanding is the difference between the interest rate and Annual Percentage Rate (A.P.R.).

While it’s great to receive a low interest rate, what’s really important is the A.P.R. It represents the “true cost” of your loan – the interest rate plus the points, fees and other terms associated with your mortgage. It prevents lenders from hiding costs from borrowers. Generally speaking, look for a small spread between the interest rate and A.P.R. Large spreads may indicate large fees.

Still, your A.P.R. can be confusing. It may not reflect certain costs or conditions, such as pre-payment penalties or the length of time your rate is locked. Federal law does not clearly specify what must go into the A.P.R. Hence, it varies from lender to lender.

While your A.P.R. is a great tool for making a comparison when buying a home or refinancing (and your interest rate never is), it’s best to consult a mortgage professional before making a final decision. He or she can offer expert insight on this and other frequently asked questions, such as whether to choose a Fixed-Rate Loan or Adjustable-Rate Mortgage.

Use our calculator to find the A.P.R. on your mortgage.