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Annual Percentage Rate (APR) represents the total cost of borrowing expressed as an annual percentage, incorporating not just the interest rate but also certain upfront fees and costs that are financed or paid at closing. APR provides a standardized way to compare the true cost of different loan options, accounting for variations in fee structures that can make loans with identical interest rates have significantly different total costs. APR is calculated by amortizing upfront costs over the loan term and combining them with the interest rate to produce a single percentage that reflects the total borrowing cost. This allows borrowers to make apples-to-apples comparisons between loans that might have different combinations of interest rates and fees. However, APR assumes the loan will be held for its full term, so it may not accurately reflect costs for borrowers who plan to refinance or sell before the loan matures.

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What APR includes and excludes

APR includes the interest rate plus finance charges that are considered part of the loan cost. The specific fees included in APR are determined by federal regulations (Regulation Z) and must be fees that are:
  1. Paid to secure the loan
  2. Required to obtain the loan
  3. Not paid to third parties for services that could be obtained independently

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Fees typically included in APR

Fee TypeDescriptionNotes
Loan origination feesFees charged by the lender for processing the loanRequired lender fee
Underwriting feesFees for evaluating the loan applicationRequired lender fee
Processing feesFees for processing loan documentationRequired lender fee
Discount pointsUpfront fees paid to reduce the interest rateOptional but included if paid
Document preparation feesFees for preparing loan documentsRequired lender fee
Mortgage insurance premiumsPMI, MIP, or other mortgage insuranceOnly if financed into loan amount
Prepaid interestInterest paid at closing for period until first paymentInterest for partial month
Application feesFees for loan applicationOnly if required to obtain loan
Credit report feesFees for pulling credit reportsRequired for loan approval
Flood certification feesRequired flood zone determinationRequired by lenders

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Fees typically excluded from APR

Fee TypeDescriptionWhy Excluded
Title insuranceOwner’s and lender’s title insurance policiesThird-party service, can be obtained independently
Appraisal feesProperty valuation servicesThird-party service, can be obtained independently
Home inspection feesProperty inspection servicesThird-party service, optional
Survey feesProperty boundary surveysThird-party service, can be obtained independently
Recording feesGovernment fees for recording documentsGovernment fee, not lender fee
Transfer taxesState and local transfer taxesGovernment fee, not lender fee
Property taxesPrepaid property tax escrowPrepaid item, not loan cost
Homeowners insurancePrepaid insurance premiumsPrepaid item, not loan cost
HOA feesPrepaid homeowners association duesPrepaid item, not loan cost
Home warranty feesOptional warranty coverageOptional service
Environmental inspection feesOptional inspectionsOptional service
Pest inspection feesOptional pest inspectionsOptional service

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Querying APR fees in GraphQL

To see which fees are included in APR for a specific loan, query the loan’s fees and check the paymentIncludedInAprIndicator field: 
query GetLoanAprFees($loanId: ID!) {
  loan(id: $loanId) {
    id
    fees {
      id
      feeType
      feeDescription
      feeActualTotalAmount
      feePayments {
        feeActualTotalAmount
        paymentIncludedInAprIndicator
        feePaymentPaidByType
      }
    }
    productPricingRate {
      apr
      rate
      closingCosts
    }
  }
}
The paymentIncludedInAprIndicator field on each FeePayment indicates whether that specific fee payment is included in the APR calculation. Only fees where this field is true are included in APR. Example response: 
{
  "data": {
    "loan": {
      "id": "loan_123",
      "fees": [
        {
          "id": "fee_1",
          "feeType": "LOAN_ORIGINATION_FEE",
          "feeDescription": "Origination fee",
          "feeActualTotalAmount": 4000,
          "feePayments": [
            {
              "feeActualTotalAmount": 4000,
              "paymentIncludedInAprIndicator": true,
              "feePaymentPaidByType": "BORROWER"
            }
          ]
        },
        {
          "id": "fee_2",
          "feeType": "APPRAISAL_FEE",
          "feeDescription": "Appraisal",
          "feeActualTotalAmount": 500,
          "feePayments": [
            {
              "feeActualTotalAmount": 500,
              "paymentIncludedInAprIndicator": false,
              "feePaymentPaidByType": "BORROWER"
            }
          ]
        }
      ],
      "productPricingRate": {
        "apr": 7.25,
        "rate": 7.0,
        "closingCosts": 12000
      }
    }
  }
}
In this example, the LOAN_ORIGINATION_FEE has paymentIncludedInAprIndicator: true, so it’s included in APR. The APPRAISAL_FEE has paymentIncludedInAprIndicator: false, so it’s excluded from APR.

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APR vs. interest rate

The interest rate represents the cost of borrowing the principal amount, expressed as an annual percentage. It directly determines the monthly principal and interest payment and is the most visible cost component for borrowers. The APR provides a more comprehensive view by incorporating upfront fees and costs, giving borrowers a better sense of the total cost of the loan. APR is typically higher than the interest rate because it includes additional costs beyond just the interest. The difference between APR and interest rate can vary significantly depending on the loan’s fee structure. Loans with high origination fees or multiple discount points will have a larger gap between the interest rate and APR, while loans with minimal fees will have rates and APRs that are very close together. APR is particularly useful for comparing loans with different fee structures, as it normalizes the comparison by accounting for both ongoing and upfront costs. However, borrowers should also consider their specific situation, including how long they plan to keep the loan, when evaluating APR versus interest rate.