APR represents the total cost of your mortgage loan over a year, expressed as a percentage. It includes both the interest rate on the loan and any additional fees or charges associated with obtaining the mortgage. By considering all these costs, the APR helps you compare different loan offers from various lenders more accurately.

Here are a few key points to help you understand APR better:

Interest Rate

The interest rate is the cost you pay to borrow the money, expressed as a percentage of the loan amount. It determines your monthly mortgage payment.

Fees and Charges

In addition to the interest rate, lenders may have various fees and charges associated with the mortgage, such as origination fees, closing costs, and discount points. These costs can vary among lenders and significantly impact the overall cost of the loan.

Amortization and Term

The APR takes into account the length of the loan and the way the interest is amortized over time. It considers factors such as whether the loan has a fixed or adjustable interest rate and the repayment schedule.

Comparison Tool

The APR serves as a valuable tool for comparing mortgage offers from different lenders. Since it includes both the interest rate and additional costs, it provides a more accurate picture of the true cost of borrowing.

Limitations

It’s important to note that APR has some limitations. It assumes you’ll keep the loan for its entire term and doesn’t consider future changes in interest rates. Additionally, not all fees may be included in the APR calculation, so it’s essential to review the loan estimate and closing documents for a comprehensive understanding of the costs.

Remember, the APR is not the same as the interest rate. The interest rate represents the cost of borrowing alone, while the APR encompasses the interest rate plus other charges. When comparing loan offers, it’s wise to consider both the interest rate and the APR to make an informed decision about the mortgage that best suits your needs.