In my almost 30 years as being a loan originator I'm frequently asked what APR means and why is it a different percentage figure than the interest rate shown on the estimate. Here's a brief explanation of what that is.
APR stands for Annual Percentage Rate. It represents the TOTAL cost of borrowing money from a lender. On mortgage loans the interest rate is what the lender charges to allow you to borrow, the APR is the interest, plus the closing costs, points, origination fees, mortgage insurance premiums (i.e., PMI, VA funding fee, FHA up-front MI) and various other fees, expressed as a percentage, that represents the actual yearly costs over the term of a loan.
The APR provides consumers with a bottom-line number or percentage they can use to compare among lenders while shopping. For example, a customer could get a loan quote from Lender A with a 5.250% 30-year fixed rate with an APR of 5.779% yet could go to Lender B and at that same 5.250% rate could see an APR of 5.706%, as that lender may have lower lender fees.
Lenders are required to disclose APRs before any loan agreement is signed. This is also to protect consumers from misleading advertising. The APR is useful to help consumers shop and compare rates and fees among lenders to get what's best for their needs.
For more information about APRs, please reach out to me.
Robert Groves, Senior Mortgage Broker
5635 N.E. Elam Young Parkway, Suite 308
Hillsboro, OR 97124