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What is the difference between an interest rate and an APR?

There are many costs associated with taking out a mortgage. These include the interest rate, points, fees, and other charges.

The interest rate is the cost of borrowing money expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan.

An Annual Percentage Rate (APR) is a broader measure of cost to you of borrowing money. The APR reflects not only the interest rate but also the points, broker fees, and certain other charges that you have to pay to get the loan, including certain of your closing costs. For that reason, your APR is usually higher than your interest rate.

Tip: Take care when comparing the APRs of adjustable-rate loans. For adjustable rate loans, the APR does not reflect the maximum or even the likely interest rate your loan may carry. This is important to keep in mind when comparing the APRs of fixed-rate loans with adjustable-rate loans, or among different adjustable-rate loans. Don’t look at the APR alone in determining what loan makes the most sense for your circumstances.

Tip: If you're shopping for a mortgage, learn how new mortgage rules may help you shop. If you already have a mortgage, use this checklist to see what steps you can take to make the most out of your mortgage.

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