Interest Rate vs APR
APR stands for Annual Percentage Rate. While the interest rate reflects actual interest charged on the loan, the APR includes the interest rate and factors in specific items charged to obtain the financing.
The APR allows you to compare the cost of borrowing from different lenders. If you have two lenders offering the same loan amount and interest rate on a 30 year fixed mortgage, you can compare the APR to see who is charging more in specific fees; However, not all fees are included in the APR calculation, and may also vary by lender.
The following fees are generally included in the APR:
• Points – both discount points and origination points
• Prepaid days of interest (which is not a fee)
• Administration fee
• Loan processing fee
• Underwriting fee
• Document drawing
• Private mortgage insurance
• Escrow/Settlement fees
The below fees are generally not included in the APR:
• Title insurance
• Notary/Signing fee
• Recording fees
• Credit report
• Document preparation
In addition to comparing the APR it’s important to review and compare all fees charged to insure you’re getting the best deal out there.