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What is the APR for a Mortgage?

What is the APR for a Mortgage?

    The Annual Percentage Rate (APR) for a mortgage is designed to make it easier to compare loan terms for different lenders.  In short, the APR is a single percentage rate that shows what your interest rate would be if it included all upfront lender and closing costs, such as points, origination and processing fees.  Instead of comparing multiple loan terms for several lenders, the APR is a single figure that you can use to compare both the mortgage rate and closing costs for a loan.  For example, if two lenders are quoting you the same mortgage rate but different closing costs, the loan with the higher closing costs will have a higher APR.

    Lenders are supposed to provide an APR any time they quote or advertise interest rates. You can also find the APR on the top of page three of the Loan Estimate document that a lender must provide to a borrower within three business days of submitting a loan application. Many lenders also provide a Loan Estimate when you shop for a mortgage and request a loan quote.

    It is important to understand that the APR is not your mortgage rate and does directly impact your monthly mortgage payment. For example, two mortgages could have different APRs but the same mortgage rate and therefore the same monthly payment.  Your monthly payment is solely determined by your mortgage rate.

    The idea behind the APR is that it is easier to compare one number rather than several numbers when you evaluate mortgage proposals. Some lenders may charge a higher mortgage rate but lower closing costs while other lenders charge a lower rate but higher costs.  The APR is one figure that takes into account these differences in loan terms. The problem with the APR for a mortgage is that it is relatively challenging to understand the formula used to calculate it, which confuses many borrowers.  For example, some of the inputs for the APR change depending on the length of the mortgage and loan program.

    Even if you do not totally understand its mathematical formula, the APR is still a valuable tool for comparing mortgages. In the simplest of terms, the higher the interest rate, the higher the APR and the higher the lender fees and non-recurring closing costs, the higher the APR. If you keep these general rules in mind, the APR can help you select the best loan terms or avoid high closing costs, which can save you a significant amount of money on your mortgage.

    If the APR is close to your mortgage rate then you know that the mortgage closing costs, including lender fees, are relatively small.  For example, if your your mortgage rate is 4.375% and your APR is 4.400%, then your closing costs are low.  If the APR is much higher than your mortgage rate then you know that the closing costs are relatively high and you may want to negotiate lower costs or change lenders.  Or if a lender is promising you a "low fee" mortgage and the APR is significantly higher than the mortgage rate then you know something is wrong and to avoid that lender.  If your loan has no lender costs, points or fees, the APR will equal the mortgage interest rate.

    Please note that if you pay mortgage insurance upfront at the time your loan closes, such as for an FHA, VA or USDA loan, then that fee is included in your APR. That is why the APR for these programs is usually higher than the APR for a conventional loan that does not require upfront mortgage insurance, even though these programs often have lower interest rates.

    The table below shows the APR, mortgage rates and closing costs for lenders in your area.  The table demonstrates the the APRs are higher when the lender charges higher fees and how the APR equals the interest rate when the lender charges no fees.  We recommend that you contact several lenders in the table to request mortgage proposals.  Comparing loan terms, including APRs, for multiple mortgages enables you find the loan with the lowest combination of interest rate and closing costs.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 11, 2018
    • Lender
    • APR
    • Loan Type
    • Rate
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    • Fees
    • Contact
    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • The example below shows an APR for a $380,000 fixed rate loan with a 4.250% mortgage rate including lender fees, non-recurring closing costs and daily interest charges (interest expense from the day the mortgage closes until the end of the month in which it closes).  The example shows that lender fees, other non-recurring closing costs and daily interest charges are included in the APR calculation.  In this case the APR of 4.339% is relatively close to the interest rate of 4.250% which means the up-front mortgage costs are relatively reasonable.  If the APR was 5.00% instead of 4.339% then we could conclude that the mortgage closing costs are relatively high. 

  • APR Example

    Mortgage Amount

    • $380,000

    Other Non-Recurring Closing Costs

    • $2,950

    Mortgage Type

    • Fixed rate mortgage

    Daily Interest Charges

    • $718
    • Varies depending on the date the mortgage closes

    Mortgage Term

    • 30 years / 360 months

    Total Fees and Costs Included in APR

    • $4,738
    • $1,070 (lender costs) + $2,950 (non-recurring closing costs) + $718 (daily interest charges) = $4,738

    Interest Rate

    • 4.25%

    APR

    • 4.339%

    Lender Fees

    • $1,070
    • no points
  • Use our free personalized mortgage quote form to compare loan quotes from leading lenders. Our form is easy-to-use, requires minimal personal information and does not impact your credit. Comparing lenders is the best way to find the loan that is right for you.

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  • Sources

    Interest Rate vs APR: http://www.freddiemac.com/blog/homeownership/20180328_interest_rate_vs_apr.page

About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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