Mortgage Rates Continue to Linger Close to 3%. But the APR Is What You Want to Pay Attention to

A photo to accompany a story about this week's mortgage rates Getty Images
Despite the last few weeks of rates trending downward, the average 30-year fixed rate ticked up last week to 3.05%. Rates are still historically low, extending the opportunity to refinance.
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  • The average 30-year fixed-rate mortgage went up 0.02% to 3.05% last week.
  • Refinance applications declined by 3% last week, according to the Mortgage Bankers Association.
  • New mortgage loan applications decreased 1.9% last week, according to the Mortgage Bankers Association.
  • The interest rate isn't the only fee to pay attention to. The annual percentage rate (APR) is the true cost of a loan.

We’ve seen mortgage rates drop over the last few weeks as they inched closer to February’s low rate levels. But last week, the average 30-year fixed mortgage rate increased slightly by 0.02%, bringing the rate back up to 3.05%. 

Despite this upward movement, interest rates are still considered historically low. Yet, new mortgage applications decreased 1.9% last week and 2.4% the week before. Low mortgage interest rates can save prospective homeowners thousands of dollars in interest, but rising home prices will overshadow the savings. The current home shortage, demand for housing, and increased competition among homebuyers have been driving up home prices. Higher home prices means bigger loans. And bigger loans need bigger down payments to help offset the monthly costs. 

Existing homeowners are in a better position to take advantage of these low rates by refinancing their current mortgage. Rising home prices actually help a homeowner gain equity advantages such as refinancing to remove mortgage insurance, a cash-out refinance, or a rate and term refinance. These options can free up cash to fund a home improvement project or pay down other high-interest debt. Even with refinance rates still at attractive levels, refinance applications declined by 3% last week and have been trending down for a few weeks, according to the Mortgage Bankers Association. 

Refinancing has many advantages, but it is not free. Some lenders may end up charging a low interest rate but higher closing costs. Figuring out the math between the two is a challenge and why it’s important to pay attention to the annual percentage rate (APR) instead. The APR will give the borrower a clear picture of the total cost of the loan. 

ABOUT THE LATEST MORTGAGE RATES

Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures.

APR Versus Interest Rate: What’s the Difference 

A loan’s APR is something that lenders are required to disclose and is used as an indicator of the long-term expense. Here is a breakdown of the difference: 

Annual Percentage Rate (APR)

The APR factors the closing fees into the interest rate. These fees can include various closing costs, discount points, lender origination fees, and more. The more fees a lender charges, the higher the APR in relation to the interest rate. The closer the APR is to the interest rate may  be an indication there are fewer lender fees. APRs do not affect your loan’s monthly payments, as it is a figure primarily used to reflect the true total cost of the loan once closing costs have been considered. 

Interest Rate 

The interest rate on your loan does not take into consideration any lenders fees. Instead, your loan’s interest rate is used to calculate your loan’s monthly payments and how much interest you’ll pay each year. 

Your loan’s principal balance is one factor that influences how much interest you pay per year. For example, a loan with a $100,000 balance and a 3% interest rate means that you’ll be paying $3,000 in interest the first year you have the loan. With each payment, your loan’s balance goes down, and you will pay a smaller amount of interest with each subsequent payment. 

Why It’s Important to Pay Attention to All the Fees

It’s important to keep track of your loan’s fees and APR, as it can have a significant impact on determining which loan is cheaper. It’s possible to have a loan with a lower interest rate be more expensive than a loan with a higher rate. 

The table below presents two loans. Loan A has a lower interest rate but higher lender fees. And Loan B has a higher interest rate but lower lender fees. 

Refinance LoanInterest Rate Lender FeesAPR
Loan A$200,0003%$6,0003.233%
Loan B$200,0003.125%$2,0003.204%

It may be tempting to choose Loan A since it has an attractive interest rate. However, since a loan’s APR illustrates the total cost of the loan, Loan A is more expensive overall. 

To put interest versus APR into practice, start by examining the Loan Estimate thoroughly for lender costs, shop and compare multiple lenders, and use a mortgage calculator to compare overall costs.