Quick answer
The mortgage interest rate is the percentage cost of borrowing the loan amount. The Annual Percentage Rate (APR) is a broader measure that reflects the interest rate plus certain loan charges, such as points and mortgage broker fees. APR is usually higher than the interest rate, but neither number should replace a full review of the Loan Estimate.
What Is the Mortgage Interest Rate?
The interest rate is the annual cost of borrowing money, expressed as a percentage. It is used to calculate the interest portion of a mortgage payment. For a fixed-rate mortgage, the rate is set for the loan term. For an ARM, the initial rate may change later under the loan agreement.
What Is APR?
APR is a broader annualized measure of the cost of borrowing. For a mortgage, it reflects the interest rate plus certain charges associated with obtaining the loan. These can include discount points and mortgage broker fees, along with other applicable charges described in the disclosure rules. Because APR includes more than the note rate, it is generally higher than the interest rate.
The CFPB explains that the interest rate appears under “Loan Terms” on page 1 of the Loan Estimate and APR appears under “Comparisons” on page 3. Read the CFPB’s interest-rate-versus-APR explanation for the official comparison.
Interest Rate vs. APR: Side-by-Side
| Question | Interest rate | APR |
|---|---|---|
| What does it measure? | The annual cost of borrowing the loan amount. | A broader measure that includes the rate plus certain loan charges. |
| What can affect it? | Market pricing, borrower profile, loan details, and lender offer. | The rate plus eligible points, broker fees, and other included charges. |
| Where can I find it? | Loan Estimate, page 1 under Loan Terms. | Loan Estimate, page 3 under Comparisons. |
| Is it enough to compare loans? | No. Review APR and other costs too. | No. Compare the full Loan Estimate, loan terms, and payment scenarios. |
A Simple Comparison Example
Imagine two lenders offer the same type of mortgage and loan amount. One offer has a lower interest rate but charges more upfront points. Another has a slightly higher rate and fewer upfront costs or a lender credit. The headline interest rate alone does not show the entire tradeoff. APR can help summarize rate and certain loan charges, but you should also review the dollar amounts and estimate how long you expect to keep the mortgage.
Important Limits When Comparing APR
- Compare loans with the same type and similar terms. An APR for an ARM may not reflect the maximum rate the loan could reach.
- Do not assume every charge or future cost is represented in APR.
- Compare the same loan amount, down payment, term, points, credits, and rate-lock period.
- Review the monthly principal-and-interest payment, total estimated monthly payment, lender fees, and cash to close.
- Ask the lender to explain any difference you cannot reconcile between offers.
How Discount Points Affect the Comparison
Discount points are upfront charges paid to reduce the interest rate offered by a lender. Lender credits can reduce upfront costs in exchange for a higher rate. Both can change the relationship between the interest rate, APR, cash to close, and long-term cost. Ask each lender for a comparable quote with the same amount of points or credits.
See our Mortgage Rates guide for more on points and rate locks. The CFPB points and lender credits guide describes how these tradeoffs work.
Where to Look on a Loan Estimate
- On page 1, confirm the loan amount, interest rate, whether the rate is adjustable, and the projected payment.
- On page 2, review lender charges, points, credits, and total loan costs.
- On page 3, compare the APR and other comparison figures.
- Confirm whether the rate is locked and until what date.
- Ask lenders to correct errors and explain costs that differ from what you discussed.
The CFPB Loan Estimate overview explains the form, and its review guide covers rate-lock details and other items to check.
Related Mortgage Guides
Mortgage Rates: How They Work
See the weekly survey reference and learn how to compare rate offers.
Frequently Asked Questions
Is APR always higher than the interest rate?
For mortgages, APR is usually higher because it includes the interest rate plus certain loan charges. Compare the disclosures and actual costs rather than assuming a fixed difference.
Does APR include every mortgage cost?
No. APR is a broader measure of borrowing cost, but it is not a substitute for reviewing all costs and terms. Look at the Loan Estimate and ask what is and is not included.
Can two mortgages have the same interest rate but different APRs?
Yes. Different points, broker fees, and other included charges can cause APRs to differ even when the note rates are the same.
Should I choose the mortgage with the lowest APR?
Not automatically. Compare the same loan type and terms, points, fees, projected payments, lock period, and expected time you will keep the loan. APR is one comparison tool, not the whole decision.
Does APR predict how high an ARM rate can rise?
No. The CFPB cautions that an ARM’s APR does not reflect the maximum interest rate the loan can reach. Review the adjustment terms and maximum payment disclosures.
Where is APR shown on the Loan Estimate?
The CFPB says the interest rate appears on page 1 under Loan Terms, while APR appears on page 3 under Comparisons.
Sources and Further Reading
- CFPB: Mortgage interest rate vs. APR
- CFPB: What is a Loan Estimate?
- CFPB: Discount points and lender credits
- CFPB: Review Loan Estimates
- CFPB: Compare and negotiate loan offers
Educational information only. This article is not financial or lending advice. Disclosure calculations can differ across loan products. Review current written documents and seek an explanation from the lender before selecting a loan.