Understanding the Difference Between Your APR(Annual Percentage Rate) and Your Interest Rate


Michael Idarola, Mortgage Expert
Posted December 26, 2020

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When you are shopping for a home loan, it is important to make sure that you end up with the best loan possible. The only way that you are going to be able to do this is if you understand all of the terms of your mortgage loan. You may encounter different interest rates along the way. You may also encounter a term called APR. It is easy to get these two terms confused and many people use them interchangeably. Even though your interest rate and your APR are going to serve a similar function, they are not the same things. By understanding the difference, you can place yourself in a position to be successful when you are shopping for a home loan.

What Is an Interest Rate?

Your interest rate is a small percentage that you are going to pay to borrow money from your lender. Then, you agree to pay back that home loan for a specified amount of time with interest. There is a chance that your interest rate is going to be fixed, meaning that it is going to be the same during the life of the loan. Or, you may receive an adjustable-rate loan, in which case your interest rate may change at some point during the loan. 

Your interest rate will always be expressed as a percentage of the loan. You are responsible for paying back not only the principal of a loan but also the interest. At the beginning of the loan, most of your payment is going to go toward the interest. At the end of the loan, most of the payment is going to go towards the principal. 

What Is the APR?

APR stands for annual percentage rate. Your APR will include your interest rate but also any additional fees that you might be paying. For example, your APR may include any interest that you paid upfront in addition to private mortgage insurance that you might be responsible for paying. 

Therefore, your APR should be higher than your interest rate because it includes any additional fees that you might be paying. If your APR is the same as your interest rate, then this means that you are not paying any additional fees on top of your interest. 

What Is the Difference Between My Interest Rate and My APR on My Loan?

You need to think about both the interest rate and the APR when you are trying to decide if a home loan is right for you. The easiest way to remember the difference is that your APR includes your interest rate but your interest rate does not include everything in your APR. Remember that there is a chance that your interest rate and APR are the same. 

Because of the Truth in Lending Act, your lender is required to disclose both of these values to you. You should be able to spot both of these numbers on your loan estimate, which you should receive shortly after filling out your mortgage application.

Can I Secure a Lower Interest Rate or APR on My Home Loan?

There are ways that you can secure a lower interest rate or APR on your home loan. These include:

  • You may be able to secure a lower interest rate if you put more money down and reduce the overall size of your loan
  • By checking your credit score for inaccuracies, you can get them corrected and improve your credit score, which can help you negotiate for a lower interest rate
  • If you are able to pay down some of your existing debt, you can improve your debt to income ratio, which can help you secure a lower interest rate

By securing the lowest interest rate possible on your home loan, you can lower your monthly payment and save money during the life of your loan.

Secure the Best Home Loan Possible on Your Mortgage Application

A home is one of the most valuable investments that you are ever going to make. Therefore, it is critical for you to get this right. If you want to secure the best home loan possible, then you need to understand exactly what you are reading. Make sure that you place yourself in the best position possible to compete for a lower interest rate on your mortgage loan.


Hi, I'm Michael Idarola
Your Mortgage Loan Officer & Mortgage Expert.

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Your Mortgage Expert

I'm Michael Idarola

Hi, my name is Michael Idarola. I'm a Mortgage Expert with Premier Lending Inc., offering personalized mortgage or home loan solutions, customized mortgage quotes, great rates, and personalized service. I'd love the opportunity to help you get into a home you love with a home loan you can afford.