What is a mortgage APR?

Think of a mortgage annual percentage rate (APR) as the true cost of your loan, expressed as an annual percentage. It’s like a price tag that goes beyond just the interest rate and takes into account all the fees and charges associated with taking out a mortgage. This means that an APR is always higher than the advertised interest rate.

The mortgage APR includes the interest rates, mortgage points, and lender fees. This is why a mortgage APR is higher than the interest rate. Interest rate is the cost of borrowing money from a lender. On the other hand, an APR includes interest rates, fees paid to your lender and broker, origination charges, mortgage points, and any other costs. The APR is therefore always higher than the interest rate. 

Comparing APRs helps you differentiate between mortgage offers that have different combinations of interest rates, discount points, and fees.

This is particularly important if you plan to hold onto your mortgage for a longer period, say 6-7 years or more. This is because the fees and charges have more time to impact the total cost of the loan. For shorter loan terms, the difference between APRs might be minimal.