Definition

• The APR on a mortgage is calculated and written as a percentage, even though it includes both the interest rate and other fees and costs that are fixed amounts and are directly related to the loan. These costs might include a loan origination fee, points or mortgage insurance premiums.
  The APR on a mortgage is similar to, but not exactly the same as the APR on a credit card. That's because a mortgage is amortized over a fixed term, while a credit card is revolving debt that rolls over from one month to the next.
  
  

APR vs. Interest Rate

• The APR on a mortgage includes the interest rate, but is not equal to the interest rate. That's because the APR also includes other fees and costs, while the interest rate doesn't include those extra amounts. Since the APR includes both the interest rate and the fees and costs, it often will be higher than the interest rate.
  
  

Limitations of APR

• One caveat about APR on a mortgage should be mentioned. That is that the APR doesn't include all of the fees and costs of a mortgage loan. For example, a loan application fee or appraisal fee normally would not be included in the APR.
  
  

APR Calculators

• Many websites offer APR calculators that borrowers can use to find out the approximate APR on a given combination of interest rate and costs and terms. The inputs into an APR calculator might include the amount of the mortgage, interest rate, term, loan origination fee and total of other costs. Borrowers should be cautious since the results of an APR calculator are only as good as the inputs and might not be accurate for a specific loan offer.
  
  

Comparing APRs

• Lenders are required to disclose the APR and interest rate on a mortgage to any borrower who applies for a loan. These disclosures help borrowers compare the interest rates and costs and fees of different loans. For example, if a loan has a low interest rate, but many high fees and costs, the APR will be higher than on a similar loan that has the same low interest rate, but lower fees and costs. This comparison works best if the borrower plans to keep the mortgage for a long time. Borrowers should weigh not just the interest rate, but also the APR and the other costs and terms of the loan before they decide to accept it.