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May 06, 2014

Interest Rate vs. APR

Interest Rate APR Chart

Ever wonder why mortgage rates are quoted both in terms of interest rate and APR?  And what the difference is?  Quoting the APR became industry practice as part of the Truth in Lending Act, a federal law passed in 1968 to protect consumers by requiring the full disclosure of the terms and conditions of finance charges in credit transactions.

The APR – or Annual Percentage Rate – includes not only the interest rate but also any other costs to get a loan such as discount points, insurance and closing costs. For example, given the same interest rate, higher APRs indicate more costs associated with obtaining a loan.  Lenders disclose these usually in the form of fees and points.  While looking at the APR is an effective way to compare the total annual cost of a mortgage as you shop around, it's only one of the metrics you should look at. Learn more about understanding your costs.

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