APR, or annual percentage rate, attempts to show the total cost of credit for a mortgage loan by combining the interest rate and closing costs into a single percentage rate. The intent behind APR is to make comparing loan offers much easier, but it’s often misleading at best.

The reason APR can be misleading is because it amortizes the closing costs over the total term of the loan. In other words, it assumes you’ll keep the loan for the entire loan term – which almost never happens. Most people refinance or sell the home by the 7-year mark.