When financing or refinancing an existing mortgage, you need to understand how the interest rate is calculated. There are two main concepts with regard to the interest rate of your mortgage: the interest rate and the Annual Percentage Rate (APR). Most common is the APR. Any cost associated with the mortgage such as closing cost and recording fees are added to the loan amount and amortized over the term of the loan. So your APR include those cost and that’s why many show two rates, interest rate which is the rate you are borrowing at and the APR, which includes other costs and amortized over the term of the loan. Therefore, the APR is bit higher than the actual interest rate.
Many advertise no-cost mortgages and low-cost mortgages. No-cost mortgages should not include lender fees, closing costs or appraisal fees. Most lenders provide credit for these costs. However, lenders are required to provide an APR regardless of whether your loan includes closing cost or not. On the other hand, low-cost mortgage may carry a lower interest rate and could include some costs associated with the loan. If you are given the option of no-cost or low-cost mortgage, ask the lender to break it down for you for comparison purposes.