The yearly cost of borrowing expressed as a percentage, including interest and fees.
Annual Percentage Rate (APR) represents the total yearly cost of a loan or credit, expressed as a percentage of the loan amount. Unlike simple interest, APR includes not just the interest rate but also other costs and fees involved in procuring the loan—such as origination fees, closing costs, and points. APR gives borrowers a more complete picture of what they'll actually pay. Lenders are required by law to disclose the APR prominently in loan documents. When comparing loans, APR is more useful than the stated interest rate alone for determining the true cost of borrowing.
APR is calculated and disclosed under federal Regulation Z, which implements the Truth in Lending Act (TILA). The formal definition: APR is the cost of credit expressed as a yearly rate, computed by including the interest rate PLUS most finance charges (origination fees, discount points, mortgage insurance, certain closing costs) and amortizing them over the loan term. For a mortgage, the CFPB-mandated calculation assumes the borrower holds the loan for its full term — even though most borrowers refinance or sell sooner, materially distorting the comparison. The general formula: solve for the rate r such that the present value of all scheduled payments equals the loan amount NET of prepaid finance charges. Regulation Z permits a 1/8 of 1 percentage point tolerance for first-lien mortgages, 1/4 point for other transactions. Common mistakes: (1) confusing APR with the note rate — APR is always higher than (or equal to) the note rate on fee-bearing loans, (2) comparing APR across DIFFERENT loan terms — a 15-year loan and a 30-year loan amortize fees differently, distorting the APR comparison, (3) using APR to compare loans you won't hold to maturity — points pay back over time, so a low-point/high-rate loan may beat a high-point/low-APR loan if you sell or refinance within a few years, (4) confusing APR (lending) with APY (savings) — APR ignores compounding, APY includes it, (5) on credit cards, APR is the periodic-rate-times-12 disclosure but the effective rate you pay is higher because credit-card interest compounds daily. See the dedicated APR vs APY glossary page for a direct comparison.
The interest rate is the cost of borrowing the principal, expressed as a yearly percentage. APR (Annual Percentage Rate) is broader: it includes the interest rate PLUS most finance charges — origination fees, discount points, mortgage insurance, certain closing costs — amortized over the loan term. APR is always equal to or higher than the note rate on fee-bearing loans. The CFPB requires lenders to disclose both numbers under Regulation Z so borrowers can compare total cost. For a no-fee loan, the APR equals the interest rate.
Usually but not always. APR assumes you hold the loan to maturity. If you plan to sell or refinance within a few years, a loan with HIGHER APR but LOWER upfront fees may cost less in total than a low-APR loan with high points. Run the actual cash flows: compute the dollars-out-of-pocket scenario for the realistic holding period (5-7 years for most homeowners according to NAR data) rather than relying on the APR sticker alone. CalcFi's Loan Comparison Calculator handles this side-by-side.
Credit-card APR is the periodic interest rate multiplied by 12 (the "nominal" annual rate). Because credit-card interest typically compounds daily, the EFFECTIVE rate (APY equivalent) is higher than the disclosed APR. Mortgage APR includes upfront finance charges (points, certain closing fees) amortized over the loan term. Both APRs are required disclosures under TILA / Regulation Z, but the computational methods differ — which is why direct APR-to-APR comparisons across loan types are misleading.
Per Regulation Z, mortgage APR includes the note interest rate PLUS finance charges: discount points, origination fees, certain underwriting and processing fees, mortgage insurance premiums, and most closing costs paid directly to the lender. NOT included: third-party fees that would be paid regardless of lender (appraisal, title insurance, recording fees in most jurisdictions), per-diem interest, and escrow deposits. The CFPB Loan Estimate disclosure form, mandated since 2015, breaks the figures down clearly.
The quoted rate is usually the NOTE rate — the pure interest charge on the unpaid balance. The APR is higher because it also amortizes finance charges (origination fee, discount points, MIP/PMI when applicable, certain closing costs) over the loan term. Lenders must show both numbers on the CFPB Loan Estimate so borrowers can see the difference. A wide gap between note rate and APR typically signals high upfront fees; a narrow gap means low fees. Either can be the better deal depending on how long you keep the loan.
Freddie Mac's Primary Mortgage Market Survey (PMMS) publishes weekly average 30-year and 15-year fixed mortgage rates plus average fees and points. The Federal Reserve Bank of St. Louis FRED series MORTGAGE30US tracks the 30-year fixed average over time. Both are free, public, and update weekly on Thursday morning. Note these report RATES, not APRs — to estimate APR, add the typical fees-and-points cost (PMMS reports this separately) amortized over the loan term, or use the CalcFi mortgage calculators.
This definition is cross-checked against the following primary sources. All sources are free, public, and authoritative.