Home  >  About Mortgages  >  Mortgage FAQ  >  What is Annual Percentage Rate (APR)?

What is an Annual Percentage Rate (APR)?

The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.

Example:
30-year fixed 8% 1 point 8.107% APR

The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.

The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong!

Unfortunately, different lenders calculate APRs differently. So a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask mortgage lenders to provide you with a Good Faith Estimate (GFE) of their costs on the same type of program (30-year fixed) at the same interest rate. This way, you'll easily be able to see which lender can offer you the best loan. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.

Call a Total Mortgage expert now at 877-868-2503 to find out how we can customize a mortgage loan with some of the lowest current mortgage rates for you.

Get a Fast, Free, No Obligation
Mortgage Rate Quote

  • Current Mortgage Rates, FHA Mortgage Rates, Mortgage Rates