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How Is A Mortgage Rate and The APR Different?

By Bob Redtree

How Is A Mortgage Rate and The APR Different? Read below to understand the differences between a mortgage interest rate and the listed APR.

When looking for a mortgage, many people are confused that a quote contains both an interest rate and an APR. While the two rates are somewhat correlated, the mortgage rate and the APR are actually different a few different ways.

APR Considers Fees

The first difference between the mortgage rate and the APR is that the APR considers the fees that need to be paid. When looking to get a mortgage, a loan comes with a wide variety of fees including origination fees and mortgage points. While these fees do not have any impact on the interest rate of the mortgage or the monthly payment, they do have a large impact on the overall affordability of the loan. The APR, on the other hand does take these fees into consideration. Therefore, when comparing two mortgages, a loan with a lower rate and higher APR is actually more expensive than one with a higher rate, but lesser fees.

Mortgage Rate is Fixed

The second difference between the mortgage rate and the APR is that the mortgage rate is fixed for the life of the loan. Assuming your loan is a fixed rate mortgage, the rate that you pay will not change. The mortgage rate is what determines the monthly payment that you are required to pay.

APR Rate is Not Fixed

The third difference between the mortgage rate and the APR is that the APR rate is not fixed. The APR that is calculated assumes that the fees that are paid up front are amortized over the life of the loan. If you refinance your mortgage or sell your home before the loan is paid, then the APR you pay is actually higher.

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