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What Does APR Mean in Relation to Mortgages?

APR stands for annual percentage rate. Lenders must report the APR in addition to the interest rate when advertising mortgages. The APR assumes that the borrower will keep the loan for the entire term.

  1. Function

    • The APR calculation includes various costs, such as origination fees, points and closing costs, in addition to the interest that will be paid over the life of the loan.

    Benefits

    • Listing the APR helps borrowers better understand the total cost of the loan. For example, a bank may offer a low interest rate, but have very high closing costs. Without knowing the APR, it would be difficult to compare this mortgage to another bank with a higher rate but much lower closing costs.

    Warning

    • The APR may not be perfectly accurate. Bankrate warns that lenders have the right to round up or down to the nearest 1/8th percent.

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