Plain-language explanation
A side-by-side definition
Mortgage offers often place the rate, APR, and points near one another. This table separates what each figure measures, how it affects the payment, and where it commonly appears in a Loan Estimate.
| Figure | What it represents | Direct payment effect | Common location |
|---|---|---|---|
| Interest rate | The annual cost of borrowing principal, excluding loan fees | Yes. Fixed-loan principal and interest is calculated with this rate | Loan Estimate page 1, Loan Terms |
| APR | The rate plus points, mortgage broker fees, and certain other loan charges | APR itself is not the rate used to calculate the scheduled payment | Loan Estimate page 3, Comparisons |
| Points | Upfront charges measured as a percentage of the loan; discount points are connected to a lower rate | They affect payment through the associated quoted rate | Loan Estimate page 2, Loan Costs |
The interest rate covers borrowing cost
The interest rate is the annual percentage charged for borrowed money. A fixed mortgage's principal-and-interest payment uses the loan amount, rate, and term.
The rate does not include points, lender charges, property tax, home insurance, mortgage insurance, or HOA dues, so it is not a complete measure of every cost.
APR annualizes the rate and certain fees
The Consumer Financial Protection Bureau says APR is broader than the interest rate because it reflects the rate, points, mortgage broker fees, and certain other charges paid to obtain the loan. A fixed mortgage's APR is therefore usually higher than its rate.
APR is not a line-item monthly charge and does not simply add property tax, insurance, and HOA dues. On an adjustable-rate mortgage, APR also does not show the maximum future interest rate.
Points are upfront charges
One point generally equals 1% of the loan amount. On a $400,000 mortgage, one point is $4,000. Discount points connected to the rate generally exchange a higher upfront charge for a lower interest rate.
There is no fixed reduction in rate for one point. It depends on the lender, loan type, and market. Lender credits work in the opposite direction: lower upfront costs are generally paired with a higher rate.
Why the same 6.5% rate can have a different APR
Two offers with the same interest rate can have different APRs when points, origination charges, broker fees, or other APR charges differ. Likewise, similar APRs can come from different combinations of rate and upfront cost.
Formal figures appear on the Loan Estimate and Closing Disclosure. A national market average does not include a particular borrower's points and fees.