APR vs. Mortgage Rate

What's the Difference?

APR (Annual Percentage Rate) and Mortgage Rate are two important terms used in the context of loans and mortgages. While both represent the cost of borrowing money, they have distinct differences. Mortgage Rate refers to the interest rate charged on a mortgage loan, which determines the monthly payment amount. It is the percentage of the loan amount that the borrower pays to the lender as interest. On the other hand, APR is a broader measure that includes not only the interest rate but also other costs associated with the loan, such as closing costs, origination fees, and discount points. APR provides a more comprehensive picture of the total cost of borrowing, allowing borrowers to compare different loan offers more accurately.


AttributeAPRMortgage Rate
DefinitionAnnual Percentage Rate, the cost of borrowing including interest and feesThe interest rate charged on a mortgage loan
CalculationIncludes interest rate, lender fees, and certain other costsOnly includes the interest rate charged by the lender
RepresentationExpressed as a percentageExpressed as a percentage
Required DisclosureRequired by law to be disclosed to borrowersNot required to be disclosed, but often provided to borrowers
ComparisonAllows borrowers to compare the overall cost of different loan offersAllows borrowers to compare the interest rates of different loan offers
Includes FeesYesNo
Variable or FixedCan be variable or fixedCan be variable or fixed
Impact on Monthly PaymentsCan affect monthly payments due to fees included in the calculationDirectly affects monthly payments

Further Detail


When it comes to obtaining a mortgage, understanding the different terms and rates associated with it is crucial. Two key terms that often confuse borrowers are APR (Annual Percentage Rate) and mortgage rate. While both are important factors in determining the overall cost of a mortgage, they represent different aspects of the loan. In this article, we will delve into the attributes of APR and mortgage rate, highlighting their differences and importance in the mortgage process.

Mortgage Rate

The mortgage rate, also known as the interest rate, is the percentage of the loan amount that a borrower pays to the lender as interest over the life of the loan. It directly affects the monthly mortgage payment and the total interest paid over the loan term. Mortgage rates can be fixed or adjustable, with fixed rates remaining constant throughout the loan term, while adjustable rates may change periodically based on market conditions.

One of the primary factors influencing mortgage rates is the overall state of the economy. When the economy is strong, mortgage rates tend to rise, and when it is weak, rates tend to fall. Lenders also consider the borrower's credit score, loan amount, loan term, and down payment when determining the mortgage rate. A higher credit score and a larger down payment generally result in a lower mortgage rate, as they indicate lower risk for the lender.

It is important for borrowers to shop around and compare mortgage rates from different lenders to ensure they are getting the best possible rate for their financial situation. Even a slight difference in the mortgage rate can have a significant impact on the overall cost of the loan.

APR (Annual Percentage Rate)

While the mortgage rate represents the cost of borrowing, the APR provides a more comprehensive view of the overall cost of the loan. The APR includes not only the interest rate but also other fees and charges associated with the mortgage, such as origination fees, discount points, and closing costs. It is expressed as a percentage and helps borrowers compare the total cost of different mortgage offers.

Unlike the mortgage rate, which is determined by the lender, the APR is regulated by the Truth in Lending Act (TILA). This regulation ensures that lenders calculate and disclose the APR in a standardized manner, allowing borrowers to make informed decisions. By law, lenders must provide borrowers with a Truth in Lending disclosure, which clearly states the APR along with other loan details.

When comparing mortgage offers, borrowers should pay close attention to the APR, as it reflects the true cost of the loan. A lower APR indicates lower overall costs, while a higher APR suggests higher costs. However, it is important to note that the APR may not be the most accurate representation of the loan's cost for borrowers who plan to sell or refinance their homes before the loan term ends.

Key Differences

While both the mortgage rate and APR are important factors in the mortgage process, they serve different purposes. The mortgage rate directly affects the monthly payment and total interest paid, while the APR provides a more comprehensive view of the overall cost of the loan. The mortgage rate is influenced by economic factors and borrower-specific details, while the APR includes additional fees and charges.

Another key difference is that the mortgage rate can vary between lenders, while the APR is a standardized measure that allows borrowers to compare offers more easily. Borrowers should consider both the mortgage rate and APR when evaluating different loan options to ensure they are making an informed decision.


Understanding the attributes of APR and mortgage rate is essential for borrowers seeking a mortgage. While the mortgage rate represents the interest paid on the loan, the APR provides a more comprehensive view of the overall cost, including additional fees and charges. Both factors play a crucial role in determining the affordability and long-term cost of a mortgage. By comparing mortgage rates and APRs from different lenders, borrowers can make informed decisions and secure the best possible loan terms for their financial situation.

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