What Is APR (Annual Percentage Rate) in Real Estate?

APR (Annual Percentage Rate) represents the total yearly cost of borrowing money, including the interest rate plus lender fees. APR gives buyers a more accurate picture of the true cost of a mortgage than the interest rate alone.

✅ How APR Works

APR includes both the interest rate and mandatory loan-related fees, such as:

  • Origination fees
  • Discount points
  • Mortgage broker fees
  • Certain closing costs

This makes APR a more complete measure of loan cost because it reflects what you actually pay over the full term.

APR = True Annual Cost of Borrowing (Interest Rate + Fees)

Example:

  • Mortgage interest rate: 6.0%
  • APR: 6.4% (includes lender fees + points)

📊 Why APR Matters in Real Estate

APR helps homebuyers compare mortgages fairly. Two loans may have identical interest rates but very different APRs depending on fees.

  • Allows true comparison: APR reveals which loan is actually cheaper.
  • Reflects all borrowing costs: Not just the rate, but lender fees.
  • Protects buyers: Lenders must disclose APR under federal law (TILA).
  • Helps evaluate points: Paying points may lower rate but increase APR short-term.

💡 APR vs. Interest Rate: What's the Difference?

Interest Rate: Cost of borrowing money, excluding fees.

APR: Interest rate + additional loan costs = the true total cost.

  • The APR is almost always higher than the interest rate.
  • A bigger gap between the two often means higher lender fees.

🏡 APR & FSBO Transactions

FSBO sellers benefit from understanding APR because it influences buyer affordability. Buyers comparing loans based on APR may choose financing that makes their monthly payments more predictable and sustainable.

Higher APR loans may limit a buyer’s purchasing power, while lower APR options can strengthen their ability to complete the transaction.

For more mortgage fundamentals, see the Mortgage Guide.