APR, the annual percentage rate, expresses the cost of credit as a yearly rate that includes the interest rate plus certain fees, such as origination charges and discount points. Lenders must disclose it on the Loan Estimate. Because it includes fees, APR is usually higher than the note rate, and it helps compare offers with different fee structures.
Buyers often compare lenders by rate alone. Pointing out the APR on two Loan Estimates helps them see when a 'lower rate' comes with higher fees. It's also why agents should avoid quoting rates as if they were the whole cost of a loan.
Example: Loan A at 6.5% with $6,000 in points and fees may show an APR around 6.7%, while Loan B at 6.625% with $1,500 in fees may show around 6.68%. Similar APRs, very different upfront cash.
No. The interest rate sets the monthly payment. APR adds certain fees to show the total yearly cost of credit, which is why it's usually higher.
It's a useful comparison, but it assumes the loan is kept for its full term. Buyers who expect to sell or refinance soon may care more about upfront costs.
Calculators with built-in definitions, free on the Agent plan.