What Is APR in Refinancing? (vs. Interest Rate & True Cost)

When shopping for a refinance, most homeowners focus on one number: the interest rate. But there’s another number — often sitting right beside it on your Loan Estimate — that may matter even more when comparing offers: the APR (Annual Percentage Rate).

APR is one of the most misunderstood terms in mortgage refinancing. Homeowners assume it’s the same thing as interest rate, or worse, ignore it completely. In reality, the APR is designed to help you compare the true cost of a refinance by including not just the rate, but also lender fees, points, and certain closing costs.

This guide breaks down the difference between APR and interest rate, explains how APR is calculated, shows why APRs vary between lenders, and how to use APR (along with the Fincast platform) to identify overpriced loans and hidden fees before you commit.

Key Takeaways

• Interest rate = cost of borrowing the principal.

• APR = interest rate plus lender fees spread over the life of the loan.

• APR shows the true cost of refinancing and helps compare offers.

• If a lender advertises a low interest rate but a high APR, it often means high lender fees or required discount points.

• APR is useful for comparison, but not perfect — especially if you won’t keep the loan for the full term.

💡 Pro Tip: Upload your Loan Estimate to Fincast. The platform benchmarks your interest rate and APR to expose inflated fees — no extra credit pulls, no spam.

What Is the Interest Rate in a Refinance?

The interest rate is the percentage you pay each year for borrowing money — not including fees.

How does the interest rate affect

• Your monthly mortgage payment

• Total interest paid

• Eligibility for certain programs

• Rate-and-term vs. cash-out pricing

What the interest rate does not include

• Origination fees

• Discount points

• Processing or underwriting fees

• Mortgage insurance

• Third-party closing costs

This is why a low interest rate can sometimes be misleading.

What Is APR in Refinancing?

APR (Annual Percentage Rate) represents the true annual cost of borrowing, including:

• Interest rate

• Lender fees

• Discount points

• Certain closing costs

APR spreads these costs over the life of the loan to help you compare offers.

APR Formula (Simplified)

APR is calculated using a federal formula that considers:

• Your loan amount

• Interest rate

• Required lender fees

• Discount points

• Loan term

It does not include every fee, but it includes the most important ones for comparison.

APR vs. Interest Rate: What’s the Difference?

Here’s how they differ:

Interest Rate

• Base cost of borrowing

• Determines the monthly payment

• Does not include fees

APR

• Includes the interest rate plus lender fees

• Represents othe verall loan cost

• Helps compare refinance offers

Simple comparison

Real Example: APR vs. Interest Rate

Lender A

• Interest rate: 5.75%

• Lender fees: $950

• Discount points: 0

• APR: 5.82%

Lender B

• Interest rate: 5.50% (looks better!)

• Lender fees: $5,500 (ouch)

• Discount points: 1 point ($4k)

• APR: 6.08%

Result:

Lender B looks cheaper on the interest rate, but costs dramatically more.

This kind of scenario is extremely common.

APR exposes these hidden pricing differences instantly.

What APR Includes (and Doesn’t Include)

APR Includes

• Interest rate

• Origination fee

• Discount points

• Underwriting & processing fees

• Certain lender-required third-party fees

• Mortgage insurance (sometimes)

APR Does Not Include

• Title insurance

• Escrow setup

• Homeowners insurance

• Property taxes

• Appraisal fees (sometimes excluded)

• Prepaid interest

APR is helpful — but not perfect.

Why APR Is Higher Than the Interest Rate

APR is always equal to or higher than your interest rate because it wraps costs into the equation.

Common reasons APR increases:

• High lender fees

• Required discount points

• Rate/credit structure

• Longer loan terms

• Higher risk adjustments

If the APR is significantly higher than the interest rate, the loan is fee-heavy.

How APR Impacts Your Refinance Decision

Use the interest rate to evaluate:

• Monthly payment

• Short-term affordability

• Early refinancing benefits

Use APR to evaluate:

• Long-term cost

• Comparison across lenders

• Identifying hidden fees

• Rate vs. points tradeoffs

When is APR most useful?

• Comparing similar loans

• Comparing lenders offering the same rate

• Long-term planning (keeping the loan 7+ years)

When APR is less useful

• If you plan to move or refinance again soon

• If comparing loans with different terms

• If lender fees differ, but you won’t keep the loan long enough to absorb them

APR Is One of the Best Tools for Spotting Hidden Fees

APR exposes common pricing traps, including:

1. Discount points disguised as a low rate

A lender may show:

• 5.375% rate

• But 1.5 points are required

APR reveals the true cost.

2. Inflated lender fees

APR rises with:

• Underwriting fees

• Admin fees

• Rate lock fees

• Processing fees

If one lender’s APR is unusually high, fees are usually padded.

3. “Fake” no-cost refinances

A lender may advertise no closing costs —

but the rate is inflated to compensate.

APR highlights this tradeoff.

How to Use APR When Comparing Refinance Offers

Step 1: Compare interest rates first

This tells you your monthly payment.

Step 2: Compare APR next

This reveals which loan is cheaper overall.

Step 3: Compare the cost over your expected time horizon

Example:

• If you’ll move in 3 years = focus on interest rate and lender credits

• If you’ll stay 7+ years = focus on APR and total cost

Step 4: Upload your Loan Estimate to Fincast

Fincast highlights:

• APR differences

• Inflated fees

• Hidden points

• Rate-cost tradeoffs

This ensures you’re comparing apples to apples.

Why APR Varies Between Lenders (Even With the Same Rate)

Even if two lenders advertise the same interest rate, their APRs can differ due to:

• Origination fees

• Required discount points

• Rate lock fees

• Admin/processing fees

• Lender credits

• Mortgage insurance structure

• Different third-party fee estimates

This is exactly why comparing APR alone isn’t enough — but it’s an important part of the picture.

How Fincast Helps You Use APR to Your Advantage

APR is valuable, but manually comparing APR and fees across multiple lenders is time-consuming — and lenders structure fees differently.

Fincast makes the comparison effortless.

How Fincast works

1. Upload your Loan Estimate

No extra credit pull.

No new application.

2. Fincast analyzes your offer

The platform breaks down:

• Rate

• APR

• Fees

• Points

• Credits

• Closing costs

• Rate-cost tradeoffs

3. Vetted lenders anonymously compete to beat your deal

You stay anonymous → no spam.

They sharpen their pricing → you save money.

4. You see transparent comparisons

If your offer is great, Fincast confirms it.

If not, you see exactly how much you could save.

FAQs: APR in Refinancing

Is APR more important than the interest rate?

Both matter. Interest rate affects your payment; APR reflects total cost.

Why is my APR so much higher than my rate?

Likely due to high lender fees or discount points.

Can APR be lower than the interest rate?

No — by definition, APR must be equal or higher.

Should I always pick the loan with the lower APR?

Not if you plan to move/refinance soon; rate may matter more.

How do I know if a lender’s APR is competitive?

Upload your Loan Estimate to Fincast to benchmark it.

Bottom Line

Your interest rate tells you what you’ll pay each month.

Your APR tells you what the loan will actually cost.

Understanding both helps you spot overpriced offers, avoid hidden fees, and confidently choose the best refinance option.

And since lenders structure fees differently, the only way to know whether your APR is competitive is to compare real offers — which is exactly what Fincast was built for.

Action Checklist

☑️ Review your interest rate

☑️ Compare your APR

☑️ Examine your lender fees and points

☑️ Consider your time horizon

☑️ Upload your Loan Estimate to Fincast

☑️ Compare competing offers anonymously

☑️ Choose the refinance with the lowest total cost

👉 Ready to see whether your APR is hiding lender fees or overpriced points?

Upload your Loan Estimate to Fincast and let vetted lenders compete — anonymously — to offer you the best refinance pricing. No spam. No extra credit pulls. Only savings.