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There is a substantial difference between APR and the mortgage loan rate, although most banks will be reluctant to tell you this.  The mortgage loan rate is simply the amount of interest charged on the loan with no other costs included.  For example, a loan with a rate of 6% would mean that you pay $6,000 in interest in the first year on a loan for $100,000.

The mortgage loan rate is just the simple interest charged to your balance, not including fees, adjustments, closing costs or any other cost of obtaining the loan.

Annual Percentage Rate

The APR is much more comprehensive than mortgage loan rate but is still easily manipulated.  The APR was created so that borrowers could easily compare rates from lender to lender, but flexibilities in calculation do not make it the best way to evaluate a loan.  There is no concrete way to calculate an APR figure so banks are free to do as they please when they publish their interest rates. 

Some basic things can be done by banks to make the APR look better to consumers, such as opting out of PMI and saving a large monthly payment.  The APR can also be manipulated by making loan terms longer.  Loans with high closing costs and upfront fees, a long term APR will be much shorter than the short term APR.  If you borrow for a 30 year term, but pay off the loan in 10, you’ll pay a much higher APR than you originally thought.  The APR figure should be a basis for comparison but calculation differences just make it another statistic.

How to compare

You should first consider the mortgage loan rate, then ask for the bank to itemize the upfront costs.  Compare each on a line by line basis, rate compared to rate, closing costs to closing costs.  This is the only true way to compare two mortgages.  Unfortunately for the consumer, we are led to believe that the APR is standard which could not be farther from the truth.