← All Glossary Terms
Definition
The Annual Percentage Rate (APR) is a broader cost-of-credit measure than your note rate, folding in points, lender fees, and mortgage insurance, expressed as a single yearly percentage. Because it captures more than just interest, the APR is always equal to or greater than the interest rate on the same loan. Lenders must disclose it under the Truth in Lending Act (TILA), which helps you compare offers on an apples-to-apples basis. When two loans show the same interest rate, the one with the higher APR generally carries higher upfront costs. Keep in mind that APR assumes you hold the loan for its full term, so it can understate true cost if you refinance or sell early. Always review both the note rate and the APR together before choosing a mortgage.
Also Known As
APR
TILA APR
Annual percentage rate of charge
Cost of credit rate
Used in Context
- When comparing two refinance quotes, you noticed the lower-rate loan actually had a higher APR because of steep origination points.
- Your loan officer pointed out that the APR on your disclosure was higher than the note rate due to bundled lender fees and mortgage insurance.
- A borrower who came through Dreamy Leads asked why the APR on their estimate didn't match the advertised interest rate.
Why is my APR higher than my interest rate?
Your APR is higher because it adds costs the interest rate leaves out, like points, lender fees, and mortgage insurance. Since these expenses get spread across the loan as a yearly percentage, the APR will always be equal to or greater than your note rate on the same mortgage.
Is APR disclosure required by law?
Yes. The Truth in Lending Act (TILA) requires lenders to disclose the APR on your mortgage. This gives you a standardized number to compare offers from different lenders, since the rate alone can hide fees and other charges that vary widely from one loan to the next.
Should I choose a loan based on APR or interest rate?
Use both. APR helps you compare total cost across lenders, but it assumes you keep the loan its full term. If you plan to refinance or sell early, a lower rate with higher fees may cost more than the APR suggests. Weigh how long you'll actually hold the loan.
Ready to compare mortgage options?
Free quotes from licensed experts — no spam, no obligation, results in 60 seconds.
Get Free Quotes →