The true cost of borrowing expressed as a yearly rate — includes the interest rate plus most fees, making it more useful for comparing loans than the interest rate alone.
Full Definition
The APR is a standardized way to express the total cost of a loan on an annual basis. It includes the interest rate plus most required fees — origination fees, mortgage broker fees, and discount points. It doesn't always include all fees (title, appraisal, and prepaid items are typically excluded) but it's more comprehensive than the interest rate alone. Federal law (TILA) requires lenders to disclose the APR. When comparing loan offers, a loan with a lower interest rate but higher fees might have a higher APR than a loan with a slightly higher rate and minimal fees. The APR is most useful for comparing loans where you plan to keep the mortgage for its full term.
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