The difference between your mortgage rate and APR

Applying for a home loan? As a mortgage borrower, you will have two rates — your mortgage rate and your Annual Percentage Rate, or APR.

What is the difference between the two? Your mortgage rate is the base rate you’ll be charged to borrow the money needed to buy your home. This is the rate that directly affects your monthly payment.

Your APR takes into account your interest rate and points, mortgage broker fees, and other charges that you have to pay to get your home loan. The federal government requires lenders to calculate APR and provide it to consumers. The idea behind the Annual Percentage Rate is to help consumers more accurately compare rates among different lenders and loan products. Your APR is typically higher than your quoted mortgage rate.

Many first-time buyers are shocked when reviewing home loan documents to see a higher rate than they had expected. But look carefully. At closing, you should see both your APR and your actual mortgage rate on your loan documents. And don’t forget to ask questions if something doesn’t look right. Review documents carefully while your home loan is being processed and on closing day.