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Home / Loans / Why Your APR Is Higher Than The Mortgage Rate Offered


Mortgage APRHave you ever noticed when you get a loan of any kind the APR is always higher than the quoted interest rate? It is usually just a few tenths of a point, but those few tenths can cost you hundreds or thousands of dollars over time. The definition of an APR is ”The annual rate that is charged for borrowing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.” according to That really doesn’t clear up much, so let’s look into what adds to the base rate to create an APR.


Yes, it may be hard to believe, but lenders tack on fees to a loan. Well, you probably knew that there were upfront fees, but there is a whole slew of fees that create your APR. All processing fees, transaction fees, account maintenance fees, etc are lumped into the APR. Having said that the APR includes fees, there has to been an exception, right? Mortgages are the exception. With a mortgage only some of the fees are lumped into the APR. The APR you are offered on a mortgage will include fees for discount points (the upfront charge to get a lower rate), mortgage insurance, broker fees, application fees, and settlement fees among others, but there are a few not included. Little things like appraisals, all credit checks, the title search, title insurance, notary, and recording fees are usually separated from the APR.

Since there are no clear regulations stating which fees must be included in an APR, it is hard to make a totally accurate comparison when shopping around for a stated APR without directly asking every lender you are considering.

What To Do

The only thing that you can do is research. Start with a short list of lenders that are offering the lowest rates. You can do that locally and manually or you can look online for a reputable mortgage broker site. There are plenty of them, so look for online reviews to see which one may be right for you. Once you have done the base research, put together a short list of the top three lenders you want to apply to. Then you can compare their offers by:

  • Directly asking each lender for a complete listing of every fee. Get that list in writing.
  • Compare each quote, then contact each lender to try and get some of the fees reduced or eliminated. Use the quotes from the other lenders as leverage.
  • Once you have settled on a lender and the loan is in the offing, read each page of the contract carefully to ensure that everything matches what you agreed to. Mistakes happen and you do not want one of those mistakes to cost you a few thousand dollars over the life of a thirty year mortgage.

Getting the best mortgage requires that you understand many things. What makes up an APR is only one. Another important piece of information to have is that many of the fees tacked on are garbage fees that only serve to pad a lenders profit margin. Many of those fees can be negotiated or eliminated if you do a little shopping around and make lenders compete.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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