The Difference Between your Mortgage Rate and APR

Applying for a home loan? As a mortgage borrower, you will see two rates – your traditional mortgage rate (also known as note rate) and your Annual Percentage Rate (generally termed APR).

What is the difference between the two? Your mortgage note rate is the base rate you’ll be charged to borrow the money needed to buy your home. This is the rate that directly affects your monthly payment. It is what determines the interest you pay on the outstanding balance.

Your APR takes into account your interest rate and discount points and a handful of other charges that you have to pay to get your home loan. It’s the amount a loan will cost the borrower over one year, expressed in a percentage including fees upfront. The federal government requires lenders to calculate APR and provide it to consumers. The idea behind the Annual Percentage Rate is to help consumers more accurately compare rates among different lenders and loan products. Your APR is typically higher than your quoted mortgage rate.

Don’t shop totally off of APR. Lenders can be deceptive or calculate it incorrectly; the best way to shop is look at the note rate and then the costs of the acquiring the loan (discount points, title fees, etc).

Many first-time buyers are shocked when reviewing home loan documents to see a higher rate than they expected when it is in fact the APR that they are looking at. Look carefully. At closing, you should see both your APR and your actual mortgage note rate on your loan documents. And don’t forget to ask questions if something doesn’t look right. Review documents carefully while your home loan is being processed and on closing day.


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