The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.
The APR is a very confusing number! The APR is designed to measure the "true cost of a loan". It attempts to create a level playing field for all lenders. It prevents lenders from advertising a low rate and hiding fees.
The best way to compare loans in our opinion is to ask lenders to provide you with a Loan Estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees.
The following fees ARE generally included in the APR: