Key takeaways

  • The annual percentage rate (APR) on a mortgage includes the interest rate and some fees. These fees are known as APR fees.
  • The most common APR fees include the mortgage lender’s origination fee and points.
  • Mortgage lenders can calculate APR differently, so make sure you understand which fees are included in your loan's APR.

When you shop for a mortgage, you’ll see loan offers with an annual percentage rate, or APR. This figure includes the interest rate on the loan in addition to fees. Mortgage lenders charge different fees, so it’s important to understand what specific fees factor into the APR you’re quoted. Here’s what to look for.

What are APR fees?

APR fees are additional mortgage costs beyond the interest rate, and often include charges like an origination fee and points.

While the APR gives you a better sense of your all-in cost, it typically doesn’t include every fee.

“Unfortunately, lenders are not required to include all fees in their calculation of APR,” says Ben Simiskey, founder and owner of PLS Advisory, LLC, in Houston, Texas. “So, it’s important for the borrower to clarify with prospective lenders exactly what fees they are including in their APR calculation.”

What fees are included in APR?

A mortgage lender might include some or all of the following fees in APR calculations:

  • Points: Often, the lender’s lowest advertised APR requires the borrower to pay one or more points, typically costing 1 percent of loan amount apiece.
  • Origination and processing fees: Many lenders include their origination fee or other fees for processing and underwriting in the APR. The processing costs might include charges like an application fee or loan delivery costs, or services like the lender’s review of the appraisal.
  • Mortgage broker fees: If you’re obtaining your mortgage through a broker, the lender that broker works with usually wraps the broker’s fee into the APR.
  • Mortgage insurance: If you’re putting less than 20 percent down on a conventional or FHA loan, your APR quote might include the cost of mortgage insurance.

What fees are not included in APR?

Rather than include these fees in the APR, many mortgage lenders charge these separately, typically as part of your closing costs:

  • Credit check fee: This is a nominal fee typically paid when you apply for the mortgage.
  • Appraisal fee: The lender usually requires you to pay this fee before it orders an appraisal of the property tied to the mortgage.
  • Property survey fee: Not every borrower needs to pay for a property survey, so this charge isn’t usually included in the APR.
  • Flood certification fee: This is another nominal fee the lender charges to verify whether the property is in a flood zone.
  • Document preparation fee: While this could be bundled in the APR along with other processing costs, it’s more often a separate charge.
  • Title insurance and services: This includes the cost of a title search and the lender’s title insurance policy. It could also include the cost of your own title insurance if you choose to buy a policy.
  • Escrow and settlement fees: These are the costs charged by the closing attorney or settlement agent. Because you can choose who to work with for the closing, these fees aren’t included in the APR.
  • Recording fees: These reflect the cost of filing the deed and mortgage with the local property records office.
  • Prepaid expenses: This includes prepaid homeowners insurance premiums, property taxes and interest, as well as mortgage insurance if applicable.

Example of APR fees

Say Nico needs a mortgage for $340,000. One lender offers him a loan with a 6.8 percent interest rate. The APR includes the following fees:

  • Origination fee: $3,400
  • One point: $3,400

Taking these costs and the 6.8 percent interest rate into account, the APR would come to 6.995 percent.

FAQ about APR fees

  • It depends on the type of mortgage you have. If you have a fixed-rate mortgage, your APR won’t change unless you refinance. If you have an adjustable-rate mortgage, the APR won’t reflect any increases to the interest rate over the life of the loan.
  • If you’re comparing APRs between mortgage lenders, a higher APR does mean you’re paying more for the loan. Keep in mind, though, that the APR is always higher than the interest rate because it includes the interest rate and fees.
  • Not necessarily. Sometimes, getting a lower APR requires you to buy points, which might not be worth purchasing if you don’t plan to keep the loan long-term. Likewise, if you want to work with a specific lender (your bank, say), you might choose to go with their offer, even if it’s at a higher APR than other lenders.
  • You can refinance to get a lower interest rate, which reduces your APR. The APR fees on a refinance tend to be cheaper than those for a home purchase, too.