Annual Percentage Rate (APR)

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In comparing any type of loan, whether it be a fixed rate loan to a fixed rate loan, adjustable rate loan to adjustable rate loan or fixed rate loan to adjustable rate loan, there is one way that can be used to compare apples to apples and even apples to oranges. APRs are designed to do just that. APRs are a way to calculate the annual cost of loans, taking into consideration loan origination fees, points and the other costs associated with securing a loan. The additional costs include appraisal and credit report fees as well as processing and document fees.

One confusing aspect of APRs is that the APR on 15 year loans will carry a higher relative rate due to the fact that the points are amortized over the 15 year term rather than the 30 year term. When a Regulation Z (the mortgage company