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What is the difference between APR Annual Percentage Rate and Interest Rate and How to Calculate APR

What is an Interest Rate (INT)?: An Interest Rate (INT) Is a simple annual interest rate that is used to calculate the interest amount for a given loan amount and a period. For example; $100,000 loan with an annual interest rate of 4% incurs an interest amount of $4000 per year.

What does Annual Percentage Rate (APR) Mean?: Interest and fees charged on a loan annually. The APR includes points and other bank/lender fees paid by the borrower and it is the true cost of the loan in term of interest rate per year.
Example: The loan amount is $100,000 and the advertised annual interest rate is 4% (same as above example). However, total cost of the loan to borrower, let's say, is $3,000 (
Loan Origination Fee, Loan Discount Fee (paid by buyer), Mortgage Insurance Premiums, Mortgage Broker Fees, etc.) In this case, the lender will be reimbursed for his share from the approved loan amount and the rest $97,000 ($100,000-$3,000) will be credited to the buyer at closing. The total annual interest stays the same $4000, therefore the Annual Percentage Rate (APR) for the above example becomes $4,000/$97,000= 4.125%. In this case, as you see, the APR is about 1/8% more than the actual advertised interest rate. To see what charges are included in the APR calculation, please see the table below.

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How to Calculate APR and Which Fees Paid By Borrower Affect APR?

Table below shows the fees typically included or excluded in APR calculation.
Please note that this is a typical scenario that was accurate at the time of publishing but could be different when you read this table in the future.
Contact us about your Questions on What is included in APR
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Equal Housing Opportunity Commission Bahman Davani REALTOR

Bahman Davani, CM, RP
TAHS, eAgentC, and
CCIM Candidate

Texas Five Star Realty
Office: (214) 457-7055
Cell: (214) 457-7055

Plano, TX 75026-1665

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