APR vs. interest rate, points, fees, and rate locks — what each number means and which ones actually matter.
A mortgage rate quote contains several numbers, and most buyers focus on the wrong one. Here's what each piece means and what actually determines how much your loan costs.
Every mortgage quote shows two rates: the interest rate and the APR (Annual Percentage Rate). The interest rate is what the lender uses to calculate your monthly payment. The APR is higher — it includes the interest rate plus most fees rolled into an annualized figure.
The gap between the two tells you something important: a large gap means high fees. A quote showing 6.8% interest rate and 7.1% APR has $12,000+ in fees baked in. A quote showing 6.9% rate and 6.95% APR has minimal fees.
When comparing lenders, compare APRs, not just interest rates. A lower interest rate with high fees can easily cost more than a slightly higher rate with minimal fees — especially if you sell or refinance within 7 years.
The APR comparison rule: APR is most useful for comparing 30-year loans you plan to keep to term. If you plan to move or refinance within 10 years, compare total costs over your expected ownership period — not just APR — because upfront fees matter more on shorter horizons.
A point is 1% of the loan amount, paid upfront at closing to buy down your interest rate. One point on a $400,000 loan is $4,000. In exchange, the lender reduces your rate — typically by 0.25% per point, though this varies.
Paying points makes sense only if you'll keep the loan long enough to recoup the upfront cost in monthly savings. The break-even is usually 5–8 years. If you might sell or refinance before then, paying points is often a bad deal.
| Scenario | Rate | Points paid | Monthly payment | Break-even on points |
|---|---|---|---|---|
| No points | 6.8% | $0 | $2,611 | — |
| 1 point | 6.55% | $4,000 | $2,543 | ~59 months |
| 2 points | 6.3% | $8,000 | $2,476 | ~59 months |
Mortgage quotes come with a Loan Estimate form — lenders are required by law to provide this within three business days of your application. The key fees to examine:
A rate lock is a lender's commitment to honor a quoted rate for a specific period — typically 30, 45, or 60 days. Once locked, your rate won't change even if market rates rise before closing. If rates fall, you generally can't change to the lower rate (unless you negotiated a float-down option).
Lock too early and you may pay for extra lock days if closing is delayed. Lock too late and you risk rates moving before your closing date. The general rule: lock when you have a signed purchase agreement and are confident in your closing timeline.
When you receive a mortgage quote, look at these three things in this order: (1) APR — the real cost, not just the rate. (2) Total closing costs from the Loan Estimate — compare this line across lenders, not just the rate. (3) Monthly payment including taxes and insurance — this is what you actually pay each month, and what the 28% guideline should be applied to.