Why your APR Looks Higher Than Your Interest Rate

Let’s Clear this Up Once and for all

Today's question comes from one of our clients buying a home in Pembroke Pines.

One of the most common questions I get when someone is reviewing their mortgage offer is this:

“Why is my APR higher than my interest rate?”

It’s a great question—and one that deserves a better answer than just “that’s how it works.” Because understanding the difference helps you avoid surprises, compare loan options accurately, and make smarter decisions about your money.

Let’s break it down.

APR vs Interest Rate: What You’re Really Looking At

Interest Rate

This is the base cost of borrowing the money, shown as a percentage.
It’s what the lender charges you for the loan itself—not including any fees or extra costs.

• Your monthly mortgage payment is calculated based on this number.

• It doesn’t include any of the one-time or upfront costs to get the loan.

APR (Annual Percentage Rate)

This number shows you the true cost of borrowing, because it includes:

• The interest rate

• Lender fees

• Discount points (if you paid to lower the rate)

• Mortgage broker fees

• Origination charges and closing costs

So while your interest rate might be 6.50%, your APR could be 6.85%—because that extra 0.35% reflects the built-in cost of the loan.

Why It Matters

When comparing two loan offers, the interest rate tells you what your monthly payment will be.

But the APR tells you what you’re really paying over time.

That’s why the Truth in Lending Act requires lenders to disclose the APR—so you’re comparing apples to apples.

Here’s the kicker:
Two lenders can offer the same interest rate—but totally different APRs.
One may charge higher upfront fees or points, which the APR reveals.

💡 Pro Tip

Compare both the interest rate and the APR when shopping for a loan.
Use the APR to see the total cost, and the interest rate to understand your monthly payment. If something feels off, ask the lender to explain the breakdown.

Let’s Make Sense of Your Options

Whether you’re comparing loan offers or just trying to understand what the numbers actually mean, you don’t have to figure it out alone.

Book a quick call and I’ll walk you through it—no pressure, just clarity.

Let’s schedule a Strategy Session.