When shopping for a mortgage, understanding the difference between APR vs. interest rate can save you thousands of dollars. While they both reflect the cost of borrowing, they measure different things — and only one gives you the full picture. This guide breaks down what APR and interest rate mean, how they’re calculated, and why the distinction is critical when comparing mortgage offers.

What is an interest rate? 

The interest rate on a mortgage is the annual cost of borrowing the loan amount, expressed as a percentage. It doesn’t include any fees or other charges associated with getting the loan. This rate determines your monthly mortgage payment and is based on:

• Your credit score
• The loan amount
• Your down payment
• The loan type and term
• Market rates at the time of application

The interest rate applies only to the loan balance. It tells you how much you'll pay the lender in interest, but not what the loan truly costs when factoring in fees. That’s why annual percentage rates are important. 

What is APR?

The annual percentage rate (APR) on a mortgage is a broader measure of the cost of the loan. It includes the interest rate plus certain lender fees and closing costs, like:

• Origination fees
• Discount points
• Underwriting fees
• Broker fees
• Some closing costs

It’s also expressed as a percentage, but APR gives you a more accurate view of what you're really paying for the loan, especially if you plan to keep it for many years.

APR vs. interest rate: What’s the difference?

Here’s a breakdown of the major differences you need to know when it comes to APR vs. interest rate:

The interest rate affects your monthly payment, but the APR affects the long-term cost of the loan. Two loans with the same interest rate may have very different APRs — and the one with the lower APR is usually the better deal.

3 reasons to compare APRs, not interest rates

#1: APR helps you compare loans more accurately 

Let’s say two lenders offer you a 6.5% interest rate, but Lender A charges $7,000 in fees, which means their loan comes with an APR of 6.9%. Lender B, on the other hand, charges $2,000 in fees, so their APR is 6.6%

Even though the interest rate is the same, the total cost of the loan from Lender A is much higher. APR makes those hidden costs visible.

#2: The longer you hold the loan, the more APR can affect you

APR spreads the upfront fees over the life of the loan. If you plan to keep the mortgage for a long time, those fees will cost you more overall.

If you refinance or sell the home within five years, for example, a lower interest rate with slightly higher APR might still be the better choice.

#3: It protects you from misleading “low rate” ads

Some lenders advertise rock-bottom interest rates, but those loans might come with high fees, points, or inflated closing costs. APR cuts through the noise by including all those costs in a single number. If the APR is significantly higher than the interest rate, it’s a red flag to dig deeper.

When to use APR vs. interest rate

Scenario

Focus On

Comparing loan offers

APR

Budgeting for monthly payments

Interest Rate

Deciding whether to buy discount points

APR

Evaluating short-term loan scenarios

Interest Rate

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Always ask lenders for a loan estimate (LE) form. They’re legally required to give this to you. The loan estimate includes both the interest rate (on page one) and APR (on page three), so you can make an apples-to-apples comparison.

Bursting common misconceptions about APRs

#1: “APR is how much I pay in interest every year.”

Not exactly. APR is a calculated percentage that includes both the interest and the loan fees — it’s not the actual amount you’ll pay annually.

#2: “My APR affects my monthly mortgage payment.”

Nope. Only the interest rate affects your monthly principal and interest payment. APR is helpful for comparing loan offers, but it’s not used to calculate your monthly bill.

#3: “If I refinance, I still use the APR from my original loan.”

Each mortgage has its own APR. If you refinance, you'll get a new loan with a new APR and interest rate. And yes, there will be new fees that factor into the new APR.

Using APR the smart way 

To help you best use the annual percentage rate to find the right loan, we have a few suggestions:

• Compare APRs from at least 3–5 lenders. Use a mortgage comparison tool or get quotes to find the best deal.
• Watch the gap between interest rate and APR. A large gap usually means high fees.
• Run the numbers. Use mortgage calculators to see how different rates and APRs affect your total repayment and monthly budget.
• Match the loan to your timeline. If you’re keeping the home for the long haul, lower APR is better. If you’ll sell or refinance soon, focus more on interest rate and upfront costs.

When it comes to APR vs. interest rate, the bottom line is this:

Interest rate tells you what you’ll pay month to month in interest. APR tells you what the loan will cost you in the long run.

Understanding the difference empowers you to shop smarter, compare mortgage offers more fairly, and avoid paying thousands more than you need to.

Always look at both when comparing mortgage offers — and make sure you're getting the full financial picture. For help getting started, we have rate tables that let you see APRs and interest rates from a wide range of lenders. 

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