APR (Annual Percentage Rate)
Total cost of a mortgage expressed as a yearly rate, including interest plus most loan fees and mortgage insurance.
APR is a federally-required disclosure that combines the note rate with the upfront cost of the loan into a single yearly percentage. It includes points, origination fees, mortgage insurance, and most lender fees, but excludes third-party costs like title insurance and appraisal. APR is meant to let borrowers compare loan offers on an apples-to-apples basis. The lower the APR for the same loan amount, the lower the total cost. APR is always equal to or higher than the note rate.
Example
A 6.500% note rate with $5,000 in lender fees on a $400,000 loan typically produces an APR around 6.65%.
Related terms
Note Rate
The actual interest rate written on your mortgage promissory note — the rate used to calculate your monthly payment.
Origination Fee
Lender's fee for processing the loan, typically expressed as a percentage of loan amount (1 point = 1%).
Points (Discount Points)
Optional upfront payment to the lender to reduce your interest rate. One point equals 1% of loan amount.
Closing Costs
Fees and charges paid at closing in addition to the down payment. Typically 2-5% of loan amount.
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