Mortgage Rate vs. APR- How to Choose Your Home Mortgage
Mortgage Banker
Richard Blair
Published on July 29, 2021

Mortgage Rate vs. APR- How to Choose Your Home Mortgage

Whether you have just started your home buying journey, or looking to refinance your current home loan, understanding the difference between a monthly mortgage rate and an Annual Percentage Rate (APR) will help you make wise financial decisions.  It can be very confusing when you are looking at advertisements from mortgage brokers or mortgage bankers. Typically, you see a mortgage rate advertised and then a second rate shown adjacent or below that interest rate. That is the APR.

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Why two interest rates being advertised at the same time

The mortgage interest rate is the interest rate that you pay every month on a fixed loan, like a 30-year loan. That is what will determine how much your monthly payment of interest and principal will be. That is the amount that you or your family depend on being the same month after month so you can budget your finances. The APR is the actual or real cost of borrowing the money. APR includes not only the interest paid over the life of the loan, but also designated fees and costs charged to borrower money to either buy, or refinance, your home mortgage. So, APR will almost always be higher than the interest rate you pay monthly.

How to use APR when home shopping or Refinancing

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A smart home buyer will use APR as a comparison tool to compare two lenders with the same interest rate. The lower the APR in that comparison from two mortgage brokers or mortgage bankers the less expensive your home loan. The APR is a tool, or calculation, to determine the true cost of your loan. It prevents mortgage lenders from advertising below market interest rates. APR shows the associated fees being charged to make their interest rate look better than the competitors. This is very true if you see an advertised mortgage rate that looks much lower than other mortgage lenders, but you are being charged points -additional fees- to get that interest rate. So, even though you receive a lower interest rate, once the closing costs are factored in, this loan could be costing you more than the lender with a slightly higher rate.

Making the Wisest Financial Decisions 

This is where working with a local lender, mortgage broker or mortgage broker can make a big difference in making the wisest financial decision. Ask your loan originator or loan officer to review the Loan Estimate with you first, then request a detailed mortgage loan analysis to show options. Determine how each scenario performs over time. Your choice of loan will also depend on how long you intend to live in the home. Your loan originator should factor this into the analysis.

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Review of Important Differences – Mortgage Rate vs. APR

Here is a re-cap of some important points to consider:

  • MORTGAGE RATE – The actual interest rate on your home loan that determines your monthly principal and interest payment but does not account for any lender points and fees paid to obtain the interest rate.
  • MORTGAGE APR- Considered to be the true cost of your home loan because it factors in lender and third-party fees and points and should be used as a comparison tool between lenders.

Combining APR Knowledge with Local Social Reviews 

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At same time that you are considering the APR and deciding the mortgage lender or loan originator that is the best fit for your situation don’t forget to check social reviews such as Google Business. Read reviews of other home buyers or borrowers, just like you, to see what their overall experience was with the lender, loan officer or loan originator. Local reviews are also a great indication of the overall experience you can expect from the loan originator.


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Mortgage Banker
Richard Blair Mortgage Banker
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