Every lender quote shows two percentages, and they do different jobs. The interest rate is the cost you pay each year to borrow the money, expressed as a percentage, and it does not include fees or other charges for the loan, per the Consumer Financial Protection Bureau. That rate is what drives the principal and interest part of your monthly payment. When buyers in Fairfax compare a first quote with a second one, the interest rate alone can make the costlier loan look cheaper.
The APR gives you the wider view. It reflects the interest rate plus any points, mortgage broker fees, and other charges you pay to get the loan, so it is usually higher than the interest rate. The size of the gap matters: a small gap points to modest upfront charges, while a wide gap points to higher fees or points baked into the offer. On a Loan Estimate, you will find the interest rate on page 1 under Loan Terms and the APR on page 3 under Comparisons. Buyers in Ashburn can use that layout to check both numbers on every estimate in the same place.
Use the two numbers together, and compare like with like. Ask each lender for the same loan type, the same term, and the same amount of discount points or lender credits, then compare the interest rate, the APR, the monthly payment, and the cash to close side by side. The Consumer Financial Protection Bureau cautions against judging a loan by APR alone. Be especially careful with adjustable rate loans: for those loans, the APR does not reflect the maximum interest rate the loan can reach. In Reston, that caution matters when a low starting rate makes an adjustable offer look simple next to a fixed rate offer.
One more limit is worth knowing before you decide. The APR covers the cost of credit, not the full cost of owning the home. Property taxes, homeowners insurance, association dues, and maintenance sit outside that number, so budget for them separately alongside your payment. Before you lock your rate, ask the lender to walk you through both percentages on the Loan Estimate and to explain, in plain terms, which fees explain the gap between them. A clear answer at that stage is a good sign about the lender, and it keeps a small difference in wording from becoming a costly misunderstanding at closing.
FAQ
Why is the APR higher than the interest rate on my Loan Estimate?
Because the APR includes more than interest. It reflects the interest rate plus any points, mortgage broker fees, and other charges you pay to get the loan, per the Consumer Financial Protection Bureau. The interest rate by itself does not reflect those fees or charges, so the broader APR usually comes out higher.
Which number should I use to compare mortgage offers?
Use both, together with the rest of the Loan Estimate. Compare offers of the same loan type and term, with the same points or credits, and look at the interest rate on page 1, the APR on page 3, the monthly payment, and the cash to close. The APR helps compare total borrowing cost, but it should not be the only number you judge.
Does the APR include property taxes and homeowners insurance?
No. The APR measures the cost of borrowing: the interest rate plus points, broker fees, and other charges paid to get the loan. Property taxes, homeowners insurance, association dues, and upkeep are costs of owning the home, not charges for the loan itself, so plan for them separately in your monthly budget.
Can I trust the APR on an adjustable rate mortgage?
Use it with caution. Per the Consumer Financial Protection Bureau, the APR on an adjustable rate loan does not reflect the maximum interest rate of the loan, and comparing the APR of a fixed rate loan with the APR of an adjustable rate loan can mislead. Ask the lender for the highest payment the loan could reach and the rules that govern each adjustment.