APR vs Interest Rate in New Jersey: What's the Real Difference?

Rate vs APR: The Critical Difference

One of the most misunderstood concepts in mortgage shopping is the difference between interest rate and APR (Annual Percentage Rate). Many New Jersey borrowers focus on rate when they should be analyzing APR—especially when shopping jumbo loans and comparing lenders with dramatically different fee structures.

Defining the Terms

Interest Rate: The percentage you pay yearly on the loan balance. This is the “sticker price” lenders advertise. A 6.75% rate means you pay 6.75% annually on outstanding balance.

APR (Annual Percentage Rate): The true annual cost of borrowing, including not just interest rate but also all lender fees, origination charges, points, discount fees, and other costs rolled into an effective annual rate.

Example:

• Lender A quotes: 6.75% interest rate
• Lender B quotes: 6.50% interest rate (sounds better!)
• But Lender B charges 2.0% origination fee ($20,000 on $1M loan)
• Lender A charges 0.5% origination fee ($5,000 on $1M loan)

When these fees are factored into annual cost, Lender A’s 6.75% rate with low fees may actually have LOWER APR than Lender B’s 6.50% rate with high fees.

Why APR Matters More Than Rate

APR is the actual cost of borrowing expressed as an annual percentage. It accounts for:

• Interest rate
• Origination fee
• Points (if charged)
• Discount points (if buying down rate)
• Appraisal fees
• Title insurance
• Processing fees
• Underwriting fees
• Other lender-specific charges

Because APR includes these costs spread over the loan term, it’s a far more accurate reflection of true borrowing cost than rate alone.

Example on $1M Bergen County Jumbo Loan:

Lender A:

• Interest Rate: 6.75%
• Origination Fee: 0.5% ($5,000)
• Discount Points: 0 ($0)
• Processing/Underwriting: $1,500
• Total Fees: $6,500
• APR: 6.82%

Lender B:

• Interest Rate: 6.50% (0.25% lower!)
• Origination Fee: 2.0% ($20,000)
• Discount Points: 0.5% ($5,000)
• Processing/Underwriting: $2,000
• Total Fees: $27,000
• APR: 6.94% (0.12% higher than Lender A!)

The borrower shopping by rate alone would select Lender B (6.50% rate). But APR reveals Lender B costs an additional 0.12% annually—about $1,200/year more—despite the lower advertised rate.

New Jersey Jumbo Lender Fee Variation

New Jersey jumbo lenders (serving Bergen, Essex, Morris, Hudson jumbo buyers) show extraordinary fee variation:

Standard Portfolio Lender:

• Rate: 6.75%–7.00%
• Origination: 0.5%–1.0% ($5,000–$10,000 on $1M)
• Points: 0 (no discount)
• Appraisal: $800–$1,500
• Title: $1,200–$2,000
• Total Fees: $7,000–$13,500
• APR: 6.82%–7.14%

Aggressive Broker (High-Volume):

• Rate: 6.50%–6.75%
• Origination: 0.75%–1.25% ($7,500–$12,500 on $1M)
• Points: 0.5%–1.0% ($5,000–$10,000)
• Appraisal: $1,000–$1,500
• Title: $1,500–$2,500
• Total Fees: $15,000–$27,000
• APR: 6.95%–7.35%

Estate/Complex Specialist:

• Rate: 6.90%–7.25%
• Origination: 1.0%–1.5% ($10,000–$15,000 on $1M)
• Points: 0–0.5% ($0–$5,000)
• Appraisal: $1,500–$3,000 (complex)
• Title: $2,000–$3,500 (complex)
• Total Fees: $13,500–$27,000
• APR: 7.05%–7.65%

Notice how aggressive brokers often quote the lowest rates but charge the highest fees, resulting in APR that’s no better than (or worse than) higher-rate specialty lenders.

How to Compare APR Across New Jersey Lenders

Get Standardized Loan Estimates

Federal Loan Estimate form (required for all mortgage applications) lists:

1. Loan Terms (amount, rate, points)
2. Projected Payments (principal, interest, taxes, insurance)
3. Closing Costs (lender fees, title, appraisal, etc.)
4. Calculating APR (annual percentage rate)

Critical: All lenders must quote APR on the Loan Estimate using identical calculation methodology, making APR comparable across lenders.

Request Identical Loan Scenarios

When comparing APR across Bergen County, Essex County, or Morris County lenders, ensure all quotes are identical:

• Loan Amount: Exact same ($1.0M, $1.2M, $1.5M)
• Down Payment: Exact same percentage (20%, 25%, 30%)
• Loan Type: Identical (jumbo, portfolio, conventional)
• Term: Same (15-year, 30-year)
• Discount Points: Request quotes at 0, 0.5, and 1.0 points (borrower pays to buy down rate)

With identical scenarios, APR becomes directly comparable across lenders.

Understand What’s Included in APR

Different lenders define “closing costs” differently. Some include property taxes (your cost), some include only lender fees. Ensure each Loan Estimate defines what’s included:

Lender Fees (included in APR):

• Origination fee
• Processing fee
• Underwriting fee
• Loan origination fee
• Points (discount or origination)
• Appraisal (typically)
• Title insurance (typically)

Borrower Costs (often NOT included in APR):

• Property taxes (your cost, not lender)
• Homeowners insurance (your cost)
• HOA reserves/fees (your cost)
• State recording fees (your cost)

When comparing lenders, verify the APR calculation includes identical fee categories.

The APR Calculation Formula

APR isn’t just “rate + fees.” It’s more sophisticated—fees are spread across the loan term as an effective annual rate:

Formula: Effective annual rate = ((Total Cost ÷ Loan Amount) ÷ Loan Term) × 100

Lenders use this formula to convert upfront fees into an annualized percentage:

$1M Jumbo Loan Example:

Lender A:

• Rate: 6.75%
• Total Fees: $6,500
• Calculation: ((6.75% base rate) + ((6,500 ÷ 1,000,000) ÷ 30)) × 100
• APR: 6.82%

The 0.07% difference (6.82% APR vs 6.75% rate) represents $6,500 in fees spread across 30 years of payments.

APR Scenarios: Bergen County Examples

Scenario 1: Standard Conventional Purchase

Bergen County Home: $600K purchase, 20% down ($120K), 30-year conventional

Lender A (Community Bank):

• Rate: 6.65%
• Origination: 0.5% ($3,000)
• Discount Points: 0 ($0)
• Fees: $4,200 total
• APR: 6.74%

Lender B (National Bank):

• Rate: 6.60%
• Origination: 1.0% ($6,000)
• Discount Points: 0.25% ($1,500)
• Fees: $8,200 total
• APR: 6.89%

Lender C (Online Lender):

• Rate: 6.55%
• Origination: 1.25% ($7,500)
• Discount Points: 0.5% ($3,000)
• Fees: $11,200 total
• APR: 7.02%

Shopping by rate alone, Lender C seems best (6.55%). But APR reveals Lender A offers the true lowest cost at 6.74%—0.28% better than Lender C.

Monthly Payment Comparison (30-year):

• Lender A: $3,697
• Lender B: $3,708
• Lender C: $3,722

30-Year Total Interest Cost:

• Lender A: $932,200
• Lender B: $935,880
• Lender C: $939,920

Lender A saves $3,680 over 30 years despite apparently having a higher rate than Lender C.

Scenario 2: Essex County Jumbo Purchase

Essex County Estate: $2M purchase, 20% down ($400K), 30-year jumbo portfolio

Portfolio Specialist A:

• Rate: 7.00%
• Origination: 1.0% ($20,000)
• Discount Points: 0 ($0)
• Estate-Level Fees: $6,000 (appraisal, complex underwriting)
• Total Fees: $26,000
• APR: 7.14%

Jumbo Broker B:

• Rate: 6.75%
• Origination: 1.5% ($30,000)
• Discount Points: 0.75% ($15,000)
• Standard Fees: $4,000
• Total Fees: $49,000
• APR: 7.42%

Estate Attorney Lender C:

• Rate: 6.90%
• Origination: 1.25% ($25,000)
• Discount Points: 0.5% ($10,000)
• Estate-Level Fees: $7,500
• Total Fees: $42,500
• APR: 7.18%

Rate alone (Jumbo Broker B at 6.75%) suggests best pricing. But APR reveals Portfolio Specialist A offers lowest true cost at 7.14%—0.28% better than Jumbo Broker B despite 0.25% higher rate.

Monthly Payment Comparison (30-year, $1.6M loan):

• Portfolio Specialist A (7.14% APR): $10,609
• Jumbo Broker B (7.42% APR): $10,805
• Estate Attorney Lender C (7.18% APR): $10,647

Difference: $196–$238/month depending on lender chosen, all starting from nearly identical advertised rates.

When to Use Discount Points to Lower Rate

An important APR concept: borrowers can sometimes pay points upfront to reduce rate, lowering both monthly payment and APR.

Example: Morris County $1.5M Purchase

Option 1: 0 Points

• Rate: 6.75%
• Origination: 1.0% ($15,000)
• No Points: $0
• Total Fees: $15,000
• APR: 6.87%
• 30-year Monthly Payment: $9,760

Option 2: 1.0 Point ($15,000 paid upfront)

• Rate: 6.25% (reduced 0.5% for point)
• Origination: 1.0% ($15,000)
• 1.0 Point: $15,000
• Total Fees: $30,000
• APR: 6.92%
• 30-year Monthly Payment: $9,306

Analysis:

• Option 1 APR: 6.87% (lower)
• Option 2 APR: 6.92% (higher by 0.05%)
• Monthly savings with Option 2: $454/month
• Payback period: $30,000 ÷ $454 = 66 months (5.5 years)

Conclusion: If you plan to keep the home 7+ years, paying the point (Option 2) makes sense despite slightly higher APR. The monthly savings exceed the upfront point cost.

If you plan to sell/refinance within 5 years, Option 1 (0 points) is better—lower APR and no upfront cost.

The Bottom Line: Always Compare APR

When shopping mortgages in New Jersey:

1. Get Loan Estimates from 3–5 lenders with identical loan terms
2. Focus on APR, not rate – Rate is the advertised price; APR is the true cost
3. Request points comparison – See quotes at 0, 0.5, and 1.0 point scenarios
4. Calculate true monthly difference – Small APR differences compound to large monthly payment differences
5. Factor holding period – Short hold (5 years): minimize upfront costs; Long hold (15+ years): optimize total interest cost

The difference between comparing rate alone vs. analyzing APR can be $50–$200+ monthly—over $20,000–$72,000 over 30 years on a New Jersey jumbo purchase.

Ready to compare APR across Bergen County, Essex County, Morris County, and Hudson County lenders? Get standardized Loan Estimates at BrowseLenders.com for transparent APR comparison.