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Mortgage APR: How Does It Affect Your Home’s Cost?

Your mortgage’s APR reflects the total cost you’ll pay to borrow the money expressed as an annual rate. It includes interest, lender fees, points, and more.

Aly J. Yale Aly J. Yale Edited by Chris Jennings Updated January 4, 2022

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. By refinancing your mortgage, total finance charges may be higher over the life of the loan.
Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

After you apply for a mortgage, you’ll see something called APR (or annual percentage rate) listed on your loan estimate. This number measures the costs you can expect to pay for the loan expressed as a yearly percentage rate. Because it reflects total costs — and not just interest paid — APR is a good way to compare mortgage offers from different lenders.

Here’s what you should know about mortgage APR:

  • What is included in APR?
  • What is the difference between mortgage APR and interest rate?
  • How does APR affect your mortgage?
  • How to compare loan offers by mortgage APR
  • Don’t be afraid to ask your lender questions

What is included in APR?

Your APR includes all the interest, fees, and other charges you can expect to pay for a home loan and converts them all into a single annual rate. You can expect the APR to include:

  • Interest
  • Lender fees
  • Mortgage broker fees
  • Points
  • Closing costs
  • Mortgage insurance

What is the difference between mortgage APR and interest rate?

Since APR and interest rates are both expressed as percentages, it can be easy to confuse the two — particularly if you’re a first-time homebuyer. They aren’t one and the same, though.

Here’s a quick look at how the two numbers differ from each other:

  • Interest rate: Also commonly called the “mortgage rate,” this is how much interest you’ll pay to borrow the money, as a percentage of the total loan amount.
  • APR: This reflects the annualized cost to take out your loan and includes interest, fees, points, mortgage insurance, and more.

A loan’s APR is typically higher than its interest rate since the APR includes the interest paid plus other fees and charges. Both numbers are useful, though.

Generally, if your goal is to have the absolute lowest monthly payment, comparing loan options by interest rate is your best bet. If you know you’ll be in the home a while and want to save more in total long-term costs, though, your APR is the best way to gauge your savings.

Learn More: APR vs. Interest Rate: Understanding the Difference

How does APR affect your mortgage?

Your APR can give you insight into how much you’ll pay for your mortgage in total over the course of your loan’s term. If you have a 30-year loan, for example, it reflects the annualized total cost of the loan, as if you were paying all costs over the full 30 years.

APR is influenced by many factors, like your:

  • Credit score
  • Debt-to-income ratio
  • Down payment
  • Lender

Use our monthly mortgage payment calculator below to see how your interest rate affects your monthly payment.

Enter your loan information to calculate how much you could pay

? Enter the total amount borrowed $
? Enter your annual interest rate %
or
? Enter the amount of time you have to repay your loan years
Total Payment $
Total Interest $
Monthly Payment $

With a $ home loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the mortgage.


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Checking rates won't affect your credit score

Generally, the higher your credit score, the lower you can expect your interest rate to be (and thus, the lower your APR will be, too). Higher credit scores indicate a lower-risk borrower, which allows a lender to offer more favorable terms, including lower interest rates and APRs. Lower credit scores will often result in the opposite.

Find Out: How to Buy a House

How to compare loan offers by mortgage APR

APRs vary from lender to lender and loan to loan. For this reason, it’s critical you compare several options before deciding which mortgage to move forward with.

Let’s look at how two loan offers with different APRs might measure up. The below scenarios are both for $250,000 home loans with 30-year terms and assume you will make fully amortizing payments for the full 30-year term of the loan.

 Loan 1Loan 2
APR4.0%4.5%
Monthly payment$1,193.54$1,266.71
Total interest paid$179,673.77$206,016.78
Note: All numbers here are for demonstrative purposes only and do not represent an advertisement for available terms.

On the loan with the higher APR (Loan 2), you’ll pay only slightly more per month, but in the long run, you’ll pay more than $26,000 in additional interest to pay the loan off over 30 years. This is why it’s critical to factor in APR when comparing your mortgage offers — especially if you know you’ll be in the home for the long haul.

Again, be sure to consider as many lenders as possible to find the right mortgage for you. With Credible, you can compare your rates from our partner lenders in the table below in three minutes.

Loading widget - purchase-rate-table

Don’t be afraid to ask your lender questions

When you apply for a home purchase mortgage (or a mortgage refinance), the lender will give you what’s called a loan estimate. This will detail the APR, interest rate, closing costs, and other fees you’ll pay in the transaction.

Make sure you ask your lender about anything you’re unsure about — including the APR. It’s important you have a good handle on all the different fees and costs to buy a house you can expect, so you can properly compare options and choose the best deal for your budget.

If you’re looking to buy a house, Credible is here to make the mortgage process easy. You can get an Instant Streamlined Pre-approval Letter in just minutes and start comparing your options today.

Credible makes getting a mortgage easy

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

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About the author
Aly J. Yale
Aly J. Yale

Aly J. Yale is a mortgage and real estate authority. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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