When you are looking for a mortgage, your lender is required to inform you of the APR and the interest rate. Your APR is a crucial factor regarding what loan is the best loan for you.

What is APR?

APR stands for Annual Percentage Rate, which is the number used to compare loans to other loans. Essentially, the APR is a common denominator amongst all loans. In more technical terms, the APR is the actual measurement of borrowing's net effective cost.

APR is a calculation made up of mortgage insurance, points, and fees. The lender can round this calculation up or down to the closest 1/8 of a percentage point.

Why Choose Low or High APR?

As a general rule of thumb, you would choose a low APR to have a better deal in the long run, and you would choose a high APR to have a better deal in the short run. Therefore, if you plan to stay in your house for a short amount of time, choose a high APR because you will pay less costs upfront. If you plan to stay in your house for a long amount of time, choose a low APR because you will pay more costs upfront but will save money throughout the course of the loan.

The federal Truth in Lending Act requires the lender to disclose both the nominal rate and the APR. The nominal rate can't be stated more conspicuously than the APR.

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