What is the difference between the interest rate and the A.P.R.?

You'll see an interest rate and an Annual Percentage Rate (A.P.R.) for each mortgage loan you see advertised. The easy answer to "why" is that federal law requires the lender to tell you both.

APR is an acronym for Annual Percentage Rate. This calculation's intent is to represent the "true cost of a loan" to a borrower, expressed in the form of a annual rate. This way, lenders can't "hide" fees and upfront costs behind low advertised rates. But, since federal law does not clearly define what goes into this calculation, APR can vary from lender to lender and loan to loan. Also, the APR on a 15 Yr Fixed Rate will carry a higher relative rate than a 30 Yr Fixed Rate due to the fact that points are amortized over a shorter period of time.

It becomes even more confusing when APR is calculated with an adjustable rate mortgage (ARM) . The APR for an ARM is dependent upon predicting future interest rates. Bottomline - LENDERS ARE REQUIRED BY LAW TO DISCLOSE THE APR, BUT IT IS MORE HELPFUL TO FOCUS ON A LENDER'S FEES and POINTS.