The annual percentage rate, or APR, is an interest rate that differs from the loan rate. It is the actual yearly interest rate paid by the borrower, including the points charged to initiate the loan and other costs.
The APR discloses the real cost of borrowing by adding on the points and by factoring in the assumption that they will be paid off incrementally over the life of the loan. The APR is usually about 0.5% higher than the loan rate and is commonly used to compare mortgage programs from different lenders.
The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. The APR is usually found next to the mortgage rate in newspaper ads.