The interest rate sets your monthly principal and interest payment. The APR (annual percentage rate) adds certain upfront costs, such as points, origination fees and mortgage insurance, and spreads them over the loan’s term, so it’s usually a little higher. APR helps compare loans with different fees, but it assumes you keep the loan for its full term, which most people don’t.
An example
Two offers on a $350,000, 30-year loan:
| Loan A | Loan B | |
|---|---|---|
| Rate | 6.50% | 6.25% |
| Points and lender fees | $1,500 | $7,000 |
| APR (approx.) | 6.55% | 6.46% |
Loan B has the lower APR, but only pays off if you keep it long enough to make back the extra $5,500 upfront.
What APR includes, and doesn’t
- Usually included: interest, points, origination and lender fees, mortgage insurance, some third-party fees.
- Usually not included: title insurance, appraisal, recording fees, property taxes and homeowners insurance.
When APR misleads
- You’ll sell or refinance within a few years: upfront costs matter more than APR suggests. Use the five-year total on page 3 of the Loan Estimate instead.
- Adjustable-rate loans: APR assumes the index stays the same, which it may not.
How to compare loans
- Compare Section A fees and rates from each Loan Estimate.
- Estimate how long you’ll keep the loan.
- Use compare mortgage offers to see the total cost over that period.
See how to read a Loan Estimate and mortgage points.
Common questions
Why is APR higher than my interest rate?
APR includes certain upfront costs, like points, lender fees and mortgage insurance, spread over the loan’s term.
Should I choose the loan with the lowest APR?
Not always. APR assumes you keep the loan for its full term; if you’ll sell or refinance sooner, upfront costs matter more.
Does APR include closing costs?
Some, like points and lender fees, but not title insurance, appraisal, taxes or homeowners insurance.
Updated October 2026. Educational content. OfferBacked is not currently a lender and doesn’t issue pre-approvals or loans.