Rate is used to determine your monthly payment. The APR is a calculation that includes the rate plus certain other items. The APR is never lower than the rate.

What is the APR? The Annual Percentage Rate is intended to assist you in determining the true cost of the loan over its entire life, usually 30 years. If you refinance your loan or sell the home before the end of the term, your true APR would be higher than that originally provided. Your monthly payment will be based on the stated rate, and the APR takes into account the payment of points, origination fees, prepaid interest and PMI (if required), among others. The APR shown in advertisements is based on certain assumptions, such as loan amount and a down payment of at least 20%. The APR on your specific loan will be different than the advertised APR. In addition, lenders may calculate the APR differently, and, as a result, it can be very misleading. APR calculations for Adjustable Rate loans are further complicated by assumptions used in estimating a rate of interest after the initial fixed period. Our advice is to obtain all fees in dollars and, for adjustable rate loans, know how the new rate will be determined once the fixed rate period is over (i.e. caps, index and margin). This approach allows you to compare loans in terms that are more easily understood. For a list of common fees, click here.