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Mortgage Basics: Interest Rate vs. APR

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What's the difference between Interest Rate and Annual Percentage Rate, or APR?

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A house forms with text above it.

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These rates are both important, but they mean two different things when it comes to your mortgage loan. You typically hear about the Interest Rate more, because it's driven by the economy. It's the percentage of the loan amount that it costs to borrow money.

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A hand scrolls through various images on a tablet screen. A pie chart is shown, highlighting the portion of the pie that is interest percentage.

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This is the rate that is used to calculate the monthly principal and interest payment, but it's not the only factor in your monthly mortgage payments. Property taxes, homeowners insurance, mortgage insurance, and association dues can affect your payments even more.

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Sheets of paper are displayed above a house, then are merged into it.

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APR, Annual Percentage Rate, is different. It's a measure of the cost of credit. APR is the percentage that signifies the actual cost over the entire term of the loan, including closing costs and some third party fees, like the settlement fee.

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Several houses are displayed, showcasing different seasonal changes in the background. Red dollar bills flash on the bottom of the screen.

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It doesn't directly influence your monthly payments. Because it's not used to calculate them. Instead, it's the cost of your specific loan amount represented annually.

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Several houses are shown.

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The APR is usually different from the interest rate, especially if you have an adjustable rate mortgage.

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A close up of one house in a box is located below text.

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Now, you know there are two rates. One tells you the basic cost to borrow. The other shows you the cost of credit over the life of the loan.

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Numerous houses unfold on paper to make a pamphlet. A red and blue logo, U.S. Bank.

Mortgage basics: What’s the difference between interest rate and annual percentage rate?

Learn how the interest rate and APR affect your home loan.

Tags: Mortgage, APR, Interest rate, Refinance, Loans
Published: April 20, 2018

If you’re new to the home loan process, you might be surprised to see two different rates on your mortgage agreement: your interest rate and your annual percentage rate (APR). That duality is commonly misunderstood. Learn the difference between interest rate and APR and the strategy involved in choosing the right rate.

Visit usbank.com to find our current interest and APR rates.

 

Mortgage and Home Equity products are offered by U.S. Bank National Association. Loan products are offered by U.S. Bank National Association and subject to normal credit approval.