Annual Percentage Rate (APR) (APR)
Direct definition
The total yearly cost of a loan as a percentage, including the interest rate and certain loan fees.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
APR is designed to make loan offers comparable on a common yardstick. It rolls the note rate together with items like origination fees, discount points, and mortgage insurance into a single annualized number.
Why it matters
APR helps you see past a headline rate to the true cost of borrowing, especially when lenders quote fees differently.
Where you may see it
- Loan Estimate
- Closing Disclosure
- Truth in Lending disclosure
A real-world example
Educational and illustrative only
A common misunderstanding
APR is not the interest rate you pay on your balance each month — it's a broader cost figure used mainly for comparing offers.
Frequently asked
Is APR the same as the interest rate?+
No. The interest rate applies only to principal; APR also reflects certain loan fees expressed as an annual percentage.
Why is APR usually higher than the note rate?+
Because it includes financed fees the note rate ignores.
Does APR include all closing costs?+
No — it includes specific finance charges defined by regulation, not third-party items like title insurance or taxes.
Can APR change?+
The disclosed APR is tied to your locked terms. On an ARM, the effective APR can change once the rate adjusts.
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- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026