What Is Annual Percentage Rate (APR)?
Annual Percentage Rate (APR): The yearly cost of a loan including interest and certain fees, used to compare loan offers.
Also called: APR
The annual percentage rate (APR) expresses the total yearly cost of a loan, including the interest rate and certain upfront fees, as a single percentage. Federal law requires lenders to disclose it.
What it includes
- Interest
- Discount points and origination fees
- Mortgage insurance
- Some other lender charges
Appraisal, title, recording and similar third-party fees are generally not included.
How to use it
Compare APRs for the same loan amount and term from different lenders. A loan with a lower rate but large fees can have a higher APR than one with a slightly higher rate and no fees.
Example
A $244,000 loan at 7.045% with $4,500 in finance charges has an APR of about 7.22%.
Limits
APR assumes you keep the loan for the full term. If you'll sell or refinance in a few years, upfront fees matter more than the APR suggests.
Good to know
Your APR appears on the Loan Estimate and Closing Disclosure. If it rises by more than 0.125% on a fixed loan after the Closing Disclosure, closing is delayed three business days.