What is the difference between the interest rate and APR? The Interest rate is the rate that is normal used by the lenders or investors the lending market. Theoretically, the APR is a number you can use to accurately compare loans among different lenders. Since the APR takes into account costs of obtaining the loan, you should be able to use APRs to find the best loan. Unfortunately, when calculating the APR, not all lenders include all fees, and some lenders may include fewer fees than another lender. What's a borrower to do?

Ask for a signed and dated Good Faith Estimate of Closing Costs (GFE). A properly prepared GFE will itemize all the costs associated with your loan. Only then can you accurately compare lenders' programs.

What fees are included in the APR?

The following fees are usually included in the APR:

• Points - both discount points and origination points
• Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
• Loan-processing fee
• Underwriting fee
• Document-preparation fee
• Private mortgage-insurance
• Appraisal fee
• Credit-report fee

The following fees are sometimes included in the APR:

• Loan-application fee
• Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)

The following fees are usually not included in the APR:

• Title or abstract fee
• Escrow fee
• Attorney fee
• Notary fee
• Document preparation (charged by the closing agent)
• Home-inspection fees
• Recording fee
• Transfer taxes

Points to remember
An APR is a starting point from which to begin to compare loans. You must get a signed and dated Good Faith Estimate of Closing Costs with which to accurately compare lenders' programs.