Definition:
Annual Percentage Rate (APR) represents the total yearly cost of borrowing money, including interest rates and additional fees, expressed as a percentage.

Example:
If you're shopping for a mortgage, one lender might offer you a 4% interest rate, but once you include additional fees, the APR could be 4.3%. Another lender may advertise a slightly higher interest rate of 4.1% but fewer fees, resulting in an APR of 4.2%. The lower APR (4.2%) reflects the better overall deal.

Explanation:
In real estate, APR is used primarily when comparing mortgages or loans. Unlike a simple interest rate, APR includes extra charges like lender fees, origination costs, mortgage insurance, discount points, and other closing costs. Because APR captures these additional expenses, it gives buyers a clearer understanding of the true borrowing costs over the life of the loan. Homebuyers use APR to compare mortgage offers from different lenders more effectively.

Importance:
APR is crucial for buyers, as even minor differences can significantly impact how much you ultimately pay. Understanding APR ensures you're not misled by an attractive advertised interest rate while hidden fees lurk beneath the surface. For sellers, offering clarity around financing terms and helping buyers understand APR can expedite the transaction process. Ultimately, grasping APR empowers you to choose the most cost-effective loan, potentially saving thousands of dollars over the lifetime of your mortgage.

Clear, straightforward knowledge of APR helps buyers make informed financial decisions, avoid costly surprises, and confidently navigate the mortgage landscape.