When comparing mortgage offers, most people focus on the interest rate — but that doesn’t tell the whole story. The APR (Annual Percentage Rate) is designed to give you a clearer picture of the true cost of a loan. However, even though APR is federally regulated, not all APRs are created equally.
Here’s what you need to know before making a decision:
Key Takeaways Up Front
- APR is more than the rate. It combines your interest rate with many of the fees and closing costs, expressed as a yearly percentage.
- It exists to protect consumers. By law, lenders must disclose APR so you can compare loans more fairly.
- But APRs can still differ. Even with federal regulation, lenders may use different assumptions that make one APR look better than another.
- Apples-to-apples comparisons matter. Two loans with the same rate and similar APR could have very different costs over time.
- Always review the Loan Estimate. Look at the total dollars — not just the percentages — when comparing offers.
What Is APR?
APR stands for Annual Percentage Rate. Unlike the interest rate, which is just the cost of borrowing the principal, APR also includes certain fees, points, and other costs of getting a mortgage.
Example:
- Loan A: 6.00% interest rate, no points, minimal fees → APR = 6.05%
- Loan B: 6.00% interest rate, but includes discount points and higher origination fees → APR = 6.45%
Both loans advertise the same rate, but the APR shows that Loan B is more expensive overall.
Why APR Exists
APR is required under the Truth in Lending Act (TILA). The goal is to help borrowers:
- Compare loans side by side
- See beyond the interest rate
- Understand the real cost of financing
How Lenders Can Influence APR
Even though APR is federally regulated, lenders can make different assumptions that affect the number you see. For example:
- Prepaid Interest: Quoting fewer days of prepaid interest lowers the disclosed APR.
- The reality is that you will pay prepaid interest from the day you close to the end of the month. If the lender knows what day you are closing on, they should have an accurate number for days of prepaid interest.
This doesn’t necessarily mean the loan is better — it just changes how the costs are shown.
How to Compare Loans the Right Way
When reviewing offers:
- Don’t stop at the interest rate.
- Don’t stop at the APR either.
- Look at the full Loan Estimate side by side, paying attention to:
- Total closing costs
- Points and credits
- Estimated cash to close
- Monthly payment breakdown
- Understand that while the lender can only control what they charge, they could be under disclosing third party fees to make their estimate look better.
That’s the only way to make a true apples-to-apples comparison between lenders.
Final Thoughts
APR is a helpful tool, but it’s not the full story. A loan with a lower APR isn’t always the cheaper or better option for your situation.
👉 If you’ve received an estimate from another lender and want a second opinion, reach out to Morgan Financial today. We’ll walk through the numbers with you and help you understand your true options — so you can helped you get locked in.
Compliance Note
This information is for educational purposes only and is not a commitment to lend. Interest rates, APRs, and loan terms vary based on individual borrower qualifications and market conditions. Please review your official Loan Estimate and Closing Disclosure for exact costs.
