Part 3 of 8
Mortgage APR Explained: Rate Versus Total Financing Cost
Understand what APR includes, why it differs from the note rate, and how to use it when comparing loans.
The note rate is used to calculate the loan's principal-and-interest payment. Annual Percentage Rate, or APR, attempts to express the interest rate together with certain finance charges as a yearly percentage.
APR can be useful when comparing loans with similar structures, but it is not a perfect decision tool. It relies on assumptions about how long the loan remains in place and which costs are included. Compare the note rate, APR, upfront charges, cash to close, and total payment together.
This lesson is general educational information, not individualized financial advice or a mortgage-rate quote. Loan programs, rates, fees, and eligibility vary by borrower, property, lender, and market conditions.
Source and further reading: Housing Brief / MBS Live Mortgage Education Library. This lesson is an original explanation by the Carson Home Team; source text is not reproduced.