The rate is what you pay each year to borrow the money. The APR is that rate plus certain upfront costs spread across the life of the loan, so it almost always runs higher. On October 22, Freddie Mac's weekly survey put the 30 year fixed at 7.32%. A day later, The Mortgage Reports listed a daily conventional average of 7.381% with an APR of 7.441%. Same week, same market, three different numbers, and none of them is yours. Yours depends on points, fees, credit score, down payment, and how long you will keep the loan. For Scottsdale and Phoenix buyers shopping at these levels, reading the gap between rate and APR is worth real money.

Rate and APR, in plain words

The interest rate decides your monthly principal and interest payment. Nothing else does. The Consumer Financial Protection Bureau explains that the APR is a broader measure: it takes the interest rate and adds points, broker fees, and other finance charges, then expresses the total as a yearly percentage. That is why it is usually higher than the rate.

Think of the rate as the price on the sticker and the APR as the price after the dealer fees you can see. Neither one is the whole bill. Title insurance, the appraisal, and recording fees are often left out of the APR, so a low APR does not mean a low cash to close figure. Our guide to closing costs when buying in Arizona shows what sits outside it.

Why the headline number is never your number

Three different kinds of figures float around, and people mix them up. A weekly survey such as Freddie Mac's is an average across the market. A daily rate table from a media site is an average from partner lenders, often for a borrower with strong credit and 20% down. A quote from a lender is a price for you, on your file, on a specific day. The first two are weather reports. The third is the forecast for your street.

Your own quote moves with credit score, loan to value, occupancy, loan size, and whether you pay points or take a lender credit. A 740 score with 20% down will price very differently from a 680 score with 5% down on the same morning. If you want to see why the market sits where it does before your quote even starts, read why mortgage rates sit above the 10 year Treasury.

Same loan, two prices: rate against APR

Here is a simple case on a $400,000 loan, such as a $500,000 Phoenix home with 20% down. Both options assume $3,000 in other lender costs. The figures are illustrations, not quotes.

Look at what happens. Option B has the higher upfront cost and the lower APR. Option B also wins if you stay five years. If you sell in year two, Option A wins, because you never recovered the $4,000. The APR could not tell you that. Only your timeline can.

How points change the math

One point costs 1% of the loan, which is $4,000 on $400,000. It typically buys a rate cut of about 0.25 to 0.5 percentage points, depending on the day and the lender. To test any offer, divide the cost of the points by the monthly savings. In the table above, $4,000 divided by $135 is about 30 months. If you expect to keep the loan longer than that, the points pay. If not, they do not. Our post on discount points on an Arizona refinance works through the same test for homeowners, and the one on rate buydowns covers temporary options.

Run your own numbers

Where APR misleads you

APR assumes you hold the loan for the full 30 years. Most people do not. Many Arizona buyers sell or refinance within seven to ten years, and some in far less. That stretches the cost of points over a period you will never see, so APR flatters a high point loan and punishes a no point loan if you leave early. It is also a poor guide for adjustable rate loans, because it has to guess what the rate will do after the fixed period. The 5/1 ARM that The Mortgage Reports showed at 6.242% on October 23 has an APR that rests on assumptions you should read, not trust.

The Total Interest Percentage on a Loan Estimate shows the interest you pay over the whole term as a share of the loan amount, which gives a second way to see cost. Use both, then ask what happens at year five.

Where to find it on a Loan Estimate

Page one shows the rate, the monthly payment, and the estimated cash to close. Page three has a Comparisons section with the APR, the Total Interest Percentage, and the total you will have paid after five years. That five year line is the most useful number on the form, because it blends rate, points, and fees over a realistic stay. Line two lenders up side by side and read that row first. Our walkthrough on how to compare mortgage Loan Estimates in Arizona takes you through the rest.

What this means in the Valley

In Metro Phoenix, plenty of deals come with a seller credit or a builder incentive tied to the builder's own lender. A rate that looks cheap because of a temporary buydown can carry a higher APR and a fatter fee list than a plain rate with a lender credit. Before you sign, ask whether the credit is a rate buydown, a closing cost credit, or a price cut, since each lands differently on the APR. If you are weighing offers from different lenders, our post on lender credits on an Arizona mortgage shows how a higher rate can pay your costs. If you are still touring homes, browse listings on Arizona Luxury Property Search, and read the Homes.com Phoenix housing market report for local price context.

Lock timing matters too. A quote is only a promise once you lock, and a float down or a short lock can change which option wins. Talk it through before the market moves, and compare the same lock period across every quote.

Where we fit in

We quote buyers and refinancers in Scottsdale, Phoenix, and across the Valley, and we show the points and the break even instead of hiding them. See the loan programs we offer, how our process works, who we are on the about page, and who you will talk to on Blake Hermann's page. You can also start at pillarmortgagegroup.com.

Frequently asked questions