The A.P.R. is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The A.P.R. is designed to represent the "true cost of a loan" to the borrower, expressed in the form of a yearly rate. This way, lenders can't "hide" fees and upfront costs behind low advertised rates.

While it's designed to make it easier to compare loans, it's sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.

What fees are included in the APR?

The following fees ARE generally included in the APR:

• Points - both discount points and origination points
  
• Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
  
• Loan-processing fee
  
• Underwriting fee
  
• Document-preparation fee
  
• Private mortgage-insurance

The following fees are SOMETIMES included in the APR:

• Loan-application fee
  
• Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)

The following fees are normally NOT included in the APR:

• Title or abstract fee
  
• Escrow fee
  
• Attorney fee
  
• Notary fee
  
• Document preparation (charged by the closing agent)
  
• Home-inspection fees
  
• Recording fee
  
• Transfer taxes
  
• Credit report
  
• Appraisal fee