Why is the Annual Percentage Rate (APR) important for borrowers?

The Annual Percentage Rate (APR) is important for borrowers because it provides a broader measure of the cost of borrowing. Unlike the interest rate, which reflects only the cost of borrowing the principal amount, the APR includes additional costs associated with the loan, such as origination fees, closing costs, and points. This comprehensive perspective allows borrowers to better understand the true cost of a mortgage over the life of the loan.

By considering the APR, borrowers can make more informed comparisons between different loan products, even if those loans have varying interest rates and fee structures. This clarity helps them determine the overall expense and affordability of a mortgage, ultimately enabling them to make smarter financial decisions regarding their home financing options.

While other aspects of the mortgage process, such as repayment terms and lender profits, are relevant, they do not encapsulate the entirety of the borrowing cost as the APR does.