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The annual percentage rate is intended to reflect the total cost of your mortgage loan. To calculate the APR, lenders consider the interest rate on your mortgage loan, the term of the loan, and other loan fees such as closing costs, points, mortgage insurance, etc. Your APR represents the total cost of credit on a yearly basis after all applicable financed charges are taken into consideration. Your monthly payment is calculated based on the mortgage note rate, not the APR. It is typically higher than your actual interest rate, because it includes these additional items and assumes you will keep the loan for the full term.