APR vs interest rate
The interest rate on your note sets how interest accrues on the balance. APR wraps certain upfront finance charges into a single yearly percentage for comparison shopping.
APR assumes you keep the loan for the full amortization period. Paying off early changes effective cost, so APR is a guide, not destiny.
What APR includes
Origination fees, discount points, and mandatory credit insurance in some cases enter APR math. Appraisal, title, and optional products may sit outside APR depending on rules.
Adjustable loans show APR at start using the initial fixed rate, which can understate risk after adjustments begin.
Comparison rate cousin
Australia and other markets publish comparison rates with standard loan amounts and terms. They highlight fee-heavy products that look cheap on rate alone.
Always check whether the standard assumptions match your loan size. Small loans make fees look larger in comparison rate terms.
Using APR wisely
Compare APR among similar products with the same term and rate type. A 30-year fixed APR is not comparable to a 5-year adjustable teaser APR without stress testing.
Pair APR review with cash needed at closing, monthly payment, and flexibility features like offset or extra repayments.
FAQs
Can two loans have the same rate but different APR?
Yes, when fees differ. Higher fees raise APR even if the note rate matches.
Is lower APR always cheaper?
Usually for long holds, but a low APR with points you finance may cost more if you refinance soon. Run break-even on points separately.
Does APR include mortgage insurance?
Treatment varies. Some disclosures include certain insurance premiums in APR calculations. Read the loan estimate footnotes.
General information only. Not financial, tax, insurance or credit advice.