From the RatesQ team · Sample question

Why is my mortgage APR higher than my interest rate?

This educational scenario and its sample explanations are not posts from real users.

I'm comparing loan estimates from two lenders. Both show a 6.875% interest rate but one has an APR of 7.12% and the other 7.35%. What's in the APR that makes it higher? And which number should I actually be comparing?

Quick Summary

  1. APR combines the interest rate with certain finance charges.
  2. Compare APR alongside points, credits and itemized fees for the same loan term.
  3. The time you keep the loan affects the costs you actually pay.

Sample explanations

From the RatesQ team

APR is the interest rate plus most of the upfront costs spread over the life of the loan, expressed as an annual rate. So a lender charging origination fees, discount points, or other costs will show a higher APR even at the same interest rate. The gap between your two lenders — 7.12% vs 7.35% — is pretty significant and probably means the second lender is charging more in fees or points. Look at page 2 of your Loan Estimates side by side.

From the RatesQ team

APR is a standardized way to compare total loan costs, but it has limits: it assumes you hold the loan to maturity, which most people don't. If you plan to sell or refinance in 5–7 years, sometimes a slightly higher APR with lender credits actually costs you less out of pocket over that period. Best approach: compare total closing costs (page 2 of the Loan Estimate), monthly payment, and the break-even point if paying points. Don't just look at rate or APR alone.