The interest rate is used to calculate your interest payment each month. The APR is NOT your interest rate. The APR is designed to show you the consumer, the effective rate you will pay after all of the costs have been considered in the loan. The Annual Percentage Rate (APR) is the cost of the loan in percentage terms taking into account various loan charges of which interest is only one such charge. Other charges which are used in calculation of the APR are Private Mortgage Insurance (PMI) or FHA Mortgage Insurance Premium (when applicable) and Prepaid Finance Charges (loan discount, points, origination fees, mortgage broker fees, prepaid interest and other credit costs). The APR is calculated by spreading these charges over the life of the loan which results in a rate higher than the interest rate shown on your Mortgage/Deed of Trust Note. If interest was the only Finance Charge, then the interest rate and the Annual Percentage Rate would be the same.