Annual Percentage Rate (APR)

A measurement used to compare different loans offered by competing lenders, which takes into account both the interest rate and closing fees

Unlike an interest rate, an APR gives you a better picture when shopping for the best deal on a loan. An APR lets you see the total cost of a mortgage, including closing fees and lender points over the life of a loan - not just the interest due. Even though lenders are required by law to show a loan's APR, they don't all use the same fees in their calculation, skewing the comparison. So always check to make sure that the APRs you are comparing include similar fees.

Example: How to compare loans using the APR

$100,000 fixed rate loans

		Loan	Interest rate	Loan fees	APR
		Loan A	7.875%	$2,000	8.087
		Loan B	8.000%	0	8.000

Even though Loan A's interest rate is lower, its higher APR signals that there are more fees to pay.

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