Annual Percentage Rate (APR) — Truth in Lending Statement (TIL): The loan officer must provide this document within three business days after you fill out the initial application. The TIL contains some helpful information such as how much interest you will pay over the life of the loan, what the charge is for making a late mortgage payment, and whether there is a penalty for paying off the mortgage early. In addition, the TIL shows you the Annual Percentage Rate. Annual Percentage Rate (APR): This figure can be somewhat confusing. The APR is not your interest rate, but it is sometimes considered to be a more realistic estimate of how much you are spending each year on your mortgage. Here's a simple way to look at it: The fees that you pay on your new mortgage can be broken into two main categories: Money paid to independent agencies (ie. appraisal, credit report, hazard insurance, attorney, etc.) and money paid directly to the lender (ie. loan origination, discount points, prepaid interest, underwriting, etc.). For example: at closing, let's say that money paid directly to the lender is $2,500 (comprised of loan origination, discount points, prepaid interest, and underwriting fees). In return, the lender gives you a $100,000 mortgage at a 10% interest rate with a monthly payment of $877.58 for 30 years. A financial calculator will show you that $877.58 (round up) is the required monthly payment if you borrow $100,000 at 10% for 30 years. But when computing the APR, it is treated as if the lender did not actually give you $100,000. For calculation purposes, the lender only gave you $97,500 (100,000 minus 2,500 in fees that you already paid). Therefore, you're paying $877.58 each month for 30 years even though the lender only gave you $97,500. Using a financial calculator, we discover that a monthly payment of $877.58 for 30 years in return for $97,500 equates to an interest rate of 10.304%—this is considered the Annual Percentage Rate. The APR is one method of analyzing the costs associated with your loan. In comparison, a $100,000 loan at 9½% interest with $5,000 "direct-to-lender" costs has an APR of 10.102%. Some people would consider this 9½% loan to be the better deal (over a 30 year period).