Mortgage & Home Loans

What is APR?

APR is the full annual cost of borrowing, expressed as a percentage. Unlike the nominal interest rate, APR includes the base interest plus upfront fees: origination, processing, underwriting, discount points, and PMI.

Lenders are legally required to disclose the APR under the Truth in Lending Act. Because it includes fees, the APR is almost always higher than the nominal rate.

Use APR to compare loan offers. The loan with the lowest interest rate may actually cost more if it has high upfront fees—APR shows the real comparison.

Quick Facts

Legal DisclosuresMandated by Truth in Lending Act (TILA)

Rate InclusionsInterest rate plus prepaid finance fees

Lender Comparison ToolStandardized baseline for true loan cost

Relation to Interest RateAlmost always higher than nominal rate

PRACTICAL EXAMPLE

Lender A offers 6.0% with $5,000 in fees — APR of 6.15%. Lender B offers 5.9% but charges $12,000 in fees — APR of 6.25%. Even though Lender B's rate looks lower, Lender A is actually cheaper. That's why you compare APR, not just the interest rate.

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RELATED TERMS

Learn More Key Concepts

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

Interest RateThe percentage charged by a lender for borrowing mortgage funds, representing the annual cost of credit before fees.

Closing CostsThe fees and expenses paid at the end of a real estate transaction to finalize the mortgage and transfer property ownership.

PMIInsurance required on conventional loans when the down payment is less than 20%, protecting the lender against borrower default.

RefinancingThe process of replacing an existing mortgage with a new one under different interest rates or terms.

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Disclaimer: NetWorthFlow provides financial calculators, simulators, and projection tools for informational and educational purposes only. None of the calculations, data, or results displayed on this website constitute professional financial, investment, tax, or legal advice. All calculations are mathematical models based on user-supplied variables and general assumptions, which may not reflect real-world market outcomes. Always consult with a certified financial planner, licensed investment advisor, or qualified tax professional before making any financial decisions.

Automated tools are not a substitute for professional counsel. We strongly advise that you consult a qualified Certified Financial Planner (CFP®), Registered Investment Adviser (RIA), Certified Public Accountant (CPA), or legal expert before making significant decisions regarding taxes, mortgages, retirement planning, investments, or debt management.