What Is APR (Annual Percentage Rate)?
The yearly cost of a loan including interest plus most fees, expressed as a percentage.
Definition
APR is the total cost of borrowing for one year, expressed as a percentage of the loan. Unlike the plain interest rate, APR includes most of the lender's fees (origination, points, mortgage insurance, broker fees) so two loans with the same interest rate can have different APRs. APR is required by US federal law on every consumer loan disclosure so borrowers can compare offers apples-to-apples. The catch: APR assumes you keep the loan to maturity, which most homeowners do not.
Formula
APR = (Total interest + Fees) / Principal / Years × 100
Example
A $200,000 mortgage at 6.5% interest with $4,000 in closing costs has an APR of about 6.68% over 30 years.
Use It
Try the Loan CalculatorRelated Terms
APY (Annual Percentage Yield)The effective yearly return on a deposit or investment, accounting for compounding.Interest RateThe percentage a lender charges to borrow money, or that a bank pays on a deposit, per year.Mortgage PointsUpfront fees paid to the lender to lower your interest rate, where one point equals 1% of the loan.