by Kyle & Jennifer Coover 
When you’re shopping for a mortgage, two key terms will come up repeatedly: interest rate and APR (Annual Percentage Rate). While they may seem similar, they represent different aspects of your loan, and understanding the difference can save you thousands of dollars over the life of your mortgage.
What Is a Mortgage Interest Rate?
The interest rate is the cost you pay each year to borrow the money, expressed as a percentage. This rate does not include any fees or additional costs associated with the loan. It only applies to the loan amount itself. Your monthly mortgage payment is calculated based on this rate, covering the principal and interest.
Key Factors That Affect Your Interest Rate:
Credit score
Down payment amount
Loan type (conventional, FHA, VA, etc.)
Loan term (15-year, 30-year, etc.)
Market conditions
What Is APR (Annual Percentage Rate)?
The APR is a broader measure of the cost of borrowing money. It includes the interest rate plus other loan-related fees, such as:
Loan origination fees
Mortgage insurance
Discount points
Closing costs
APR gives you a more accurate picture of what you’ll pay over the life of the loan because it factors in these additional expenses.
Interest Rate vs. APR – What’s the Difference?
| Feature | Interest Rate | APR (Annual Percentage Rate) |
|---|---|---|
| Definition | Cost of borrowing the principal | Total cost of the loan including fees |
| Includes Fees? | No | Yes |
| Purpose | Determines monthly payment | Shows true cost over the loan’s life |
| Displayed As | Percentage (%) | Percentage (%) |
| Helpful For | Monthly budgeting | Comparing loan offers from different lenders |
Why Both Matter
The interest rate tells you what your monthly mortgage payment will look like.
The APR helps you understand the true cost of your loan.
If you’re comparing loan offers, one lender might offer a lower interest rate but higher fees, leading to a higher APR. Another might offer a slightly higher interest rate but lower fees, resulting in a lower APR. Looking at both helps you make the best financial decision.
Which One Should You Focus On?
If you’re staying in the home long-term, focus more on the APR to see the overall cost.
If you’re planning to sell or refinance in a few years, the interest rate might be more important since upfront fees will matter less.
Need Help Navigating Mortgage Options?
We work closely with trusted lenders who can help you understand your loan terms and find the best mortgage for your situation. Ready to explore your home financing options? Contact us today, and we’ll connect you with a knowledgeable lender to guide you through every step.
