Buyers

The Difference Between Interest Rate and APR

Have you ever wondered what the difference is between a mortgage’s interest rate and its annual percentage rate? Here’s the answer…

The interest rate is the cost you’ll pay each year to borrow the money, expressed as a percentage rate. The interest rate doesn’t reflect fees or other charges related to the loan.

An annual percentage rate (or “APR”) is a broader measure of the full cost you’ll incur to borrow money. The APR reflects the interest rate as well as any points, mortgage broker fees and any other charges that you might have to pay to get the loan. Due to this, the APR is usually higher than the interest rate.

Pay close attention to the APR when comparing different fixed rate loan options because the APR is a more accurate picture of the true cost of borrowing.

For adjustable rate loans, the APR does not reflect the maximum interest rate of the loan – so be careful when comparing the APR’s of fixed-rate loans with adjustable-rate loans. Still have questions? Just ask your REALTOR® and they can help!

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