What’s the difference between a mortgage rate and the APR?
The interest rate—not the APR—on your mortgage loan determines your base monthly mortgage payment (principal and interest).
The APR is a slightly higher number that shows the overall finance charge. It includes your loan’s closing costs in addition to your base interest rate, so that you can see the real cost of your loan.
How this looks: if you have a loan at 6.000% interest rate and its APR is 6.091%, this means that your 6.000% loan is actually like a loan at 6.091% because of your loan’s additional closing costs.
Use the APR to compare mortgage rates and closing costs
The total amount of closing costs can vary widely from one lender to another. You can easily see that difference in the APR of different loans that you compare.
A 6.000%-interest-rate loan may have an APR of 6.091% with one lender, but have a 6.250% APR with a different lender.
This tells you that the closing fees at the first lender are lower than at the second one.
By comparing both interest rates and APRs, you’ll quickly see that all mortgage loans are not the same, even if they start out with similar base interest rates.