What is APR?

Last updated: May 08, 2026

The annual percentage rate (APR) on a mortgage includes the interest rate plus certain fees lenders charge. Because it considers these other costs, APR can be helpful when you compare mortgage options from multiple lenders.

Many people focus on interest rates when shopping for a home. However, the interest rates you see advertised by different lenders seldom include additional costs, like broker or loan origination fees. That makes it hard to compare mortgages based on interest rates alone.

This is where the annual percentage rate (APR) comes in. The APR combines the interest rate with certain fees required to obtain the loan – such as discount points, closing costs, and the interest rate itself—and shows them as a simple percentage. 

While it doesn’t include every possible mortgage cost, federal rules require all lenders to calculate the APR using the same methodology. As a result, you get a more complete measure of the loan's cost, and a more reliable way to compare deals from different lenders.

Annual percentage rate considers multiple borrowing costs, including:

• Interest rate. The interest rate is the cost to borrow money expressed as a yearly percentage. It’s based on the loan principal – the initial amount you borrowed - and is used to calculate the monthly mortgage payment. The interest rate is the largest component of a loan’s annual percentage rate.
• Discount points. You can think of discount points as a form of prepaid interest—you pay extra money at closing in exchange for a lower interest rate over the life of your loan. Generally, the longer you plan to stay in the home, the more sense it makes to pay discount points up front, because the money you save each month by having a lower rate adds up over time.
• Closing costs. Aside from your down payment, the up-front expenses required for a mortgage are referred to as closing costs. Not all closing costs are included in APR, but certain lender fees typically are.

Because APR includes additional costs and spreads them over the life of the loan, it's often higher than the mortgage's interest rate. But if you compare two loans with similar interest rates but different APRs, the loan with the lower APR will generally cost less overall.

Loans with shorter terms—say, 15 years as compared to 30 years—often have lower APRs. While this can mean paying less interest overall, monthly payments are usually higher.

A good APR on a mortgage depends largely on market conditions and the type of loan. One way you might evaluate if you're getting a good APR is to look at the current national average. If your APR is lower, then it's likely competitive.

A lower APR on a mortgage can add up to significant savings. While some of the factors that influence your APR are outside your control (like the financial market), you can take steps to improve your chances of getting a lower rate. Here are a few examples:

• Improve your credit. A better credit score could help you get a lower interest rate, which is the largest component of your APR. So be sure to review your credit report and address any issues you can.
• Reduce your debt. Lenders will examine your debt-to-income (DTI) ratio to determine the risk associated with you taking on another payment. While debt isn’t necessarily viewed negatively on a loan application, you’ll want to ensure your total debt doesn’t exceed a certain percentage of your income. Having a DTI ratio of 35% or less is a good rule of thumb.
• Consider using discount points. Discount points can lower the overall cost of the loan—and thus the APR—by reducing the interest rate in exchange for additional cash up front. If you don’t need the money for other expenses and plan to stay in the home for a while, paying points could be a good move.

Within days of submitting your loan application, you should receive a written loan estimate for each product you explore from every lender you shop. The APR is printed on the loan estimate. All lenders use a similar format, which can make it easier to find and compare the APR and loan details you receive from different lenders.

At Wells Fargo, your home mortgage consultant will even refresh this information should things change while you’re still exploring your options or searching for a home. This helps you have the most up-to-date APR quote handy when you’re ready to compare loans and offers. A Wells Fargo home mortgage consultant can help you find the right mortgage loan and guide you through all your options so you can make the best choice possible.