APR vs. Rate in Texas: Why You're Probably Overpaying

APR vs. Rate in Texas: Why You’re Probably Overpaying

Walk into any Texas mortgage lender and ask for their “best rate.” You’ll hear: “5.875% conventional!” Sounds great—until you see the Loan Estimate and realize the APR is 6.45%. What happened?

You just got hit with the oldest trick in the mortgage playbook: rate vs. APR confusion. Here’s how to spot it, avoid it, and save thousands.

What’s the Difference Between Rate and APR?

Interest Rate = the percentage you pay on the loan balance annually APR (Annual Percentage Rate) = the true cost of borrowing, including rate + fees

Simple example:

• Loan amount: $300,000
• Rate: 6.00%
• Lender fees: $0
• APR: 6.00% (no fees, so APR = rate)

Real-world example:

• Loan amount: $300,000
• Rate: 6.00%
• Lender fees: $6,000 (origination, points, processing, underwriting)
• APR: 6.40% (fees add 0.40% to the true cost)

The rate is what you see in ads. The APR is what you actually pay.

Why Texas Lenders Advertise Rate, Not APR

Because rate sells. Borrowers compare rates, not APR. So lenders compete on rate and hide fees.

Real Texas lender quotes (same borrower, same day, December 2025):

Which is cheapest?

• Lowest rate: Lender A (5.875%)
• Lowest APR: Lender B (6.15%)
• Lowest fees: Lender C ($1,200)

Answer: Lender B has the lowest true cost (APR 6.15%). You’d pay $24/month more than Lender A but save $4,300 in upfront fees—and break even in 15 months.

If you only compared rates, you’d pick Lender A and overpay by $5,000+ over the loan life.

What Fees Are Included in APR?

APR includes costs that affect the time value of money:

Included in APR:

• Origination fee (0.5%–1.5% of loan amount)
• Discount points (each point = 1% of loan, lowers rate by ~0.25%)
• Underwriting fee ($500–$1,500)
• Processing fee ($300–$800)
• Loan application fee ($200–$500)
• Prepaid interest (pro-rated to first payment)
• Private Mortgage Insurance (PMI) if applicable
• Mortgage insurance premium (FHA, VA funding fee)

NOT included in APR:

• Appraisal fee ($500–$700 in Texas)
• Title insurance and escrow fees ($2,000–$5,000)
• Credit report fee ($30–$50)
• Homeowners insurance
• Property taxes
• HOA fees

Why this matters: Two lenders can have identical APRs but wildly different total closing costs if one charges higher title/appraisal fees (which aren’t in APR).

Always ask: “What’s the APR, and what are total closing costs?”

Real Texas APR Tricks to Watch For

Trick 1: Low Rate, High Points

Lender pitch: “5.75% rate!” Fine print: 2 points = $6,000 on a $300K loan

Translation: You’re paying $6,000 upfront to buy the rate down 0.50%. If you’re not staying in the home 5+ years, you won’t break even.

How to spot it: Ask, “How many points am I paying for this rate?” If more than 0.5–1 point, compare to a no-point option.

Trick 2: Junk Fees Disguised as “Lender Fees”

Common junk fees in Texas:

• “Administrative fee” ($500–$1,200)
• “Document prep fee” ($300–$600)
• “Wire transfer fee” ($50–$150)
• “Rate lock fee” ($200–$500)

These are profit centers, not actual costs. Some are negotiable; some can be waived.

How to spot it: Compare Loan Estimates from 3 lenders. If one has a “processing fee” of $1,200 and another has $400, ask why.

Trick 3: Bait-and-Switch APR

Scenario: You’re quoted 6.00% rate, 6.25% APR. You get the Loan Estimate 3 days later, and APR is now 6.50%.

What happened: Initial quote didn’t include all fees. Lender added origination, underwriting, and points after you committed.

How to avoid it: Get the Loan Estimate in writing within 3 business days of application (federal law). Compare it to the initial quote.

Trick 4: APR Assumes You Hold the Loan 30 Years

APR calculations assume you keep the loan for its full term (30 years for a 30-year mortgage). But most borrowers refinance or sell within 7–10 years.

Why this distorts APR: Upfront fees (points, origination) are spread over 30 years in the APR formula. If you refinance in 7 years, you paid those fees but didn’t get 30 years of benefit.

Example:

• $300K loan, 6.00% rate, $6,000 in fees
• APR if held 30 years: 6.30%
• Effective APR if refi in 7 years: 6.60% (fees amortized over fewer years)

How to adjust: Ask your lender, “If I refinance in 7 years, what’s my effective APR?” Or use a mortgage calculator to model break-even scenarios.

How to Compare APR Correctly in Texas

Step 1: Get 3+ Loan Estimates

Federal law requires lenders to provide a Loan Estimate within 3 business days of application. It’s a standardized 3-page form showing rate, APR, fees, and monthly payment.

Compare these fields across lenders:

• Interest rate (page 1, top left)
• APR (page 1, top left, in bold)
• Loan costs (page 2, Section A + B + C)
• Total closing costs (page 2, bottom)
• Monthly principal & interest (page 1, middle)

Step 2: Normalize for loan type and credit score

APR varies by loan type:

• Conventional: Lower APR (no upfront mortgage insurance)
• FHA: Higher APR (1.75% upfront MIP + 0.55%–0.85% annual MIP)
• VA: Moderate APR (funding fee 2.15%–3.3%, no PMI)

Only compare APRs for the same loan type and credit tier. A 6.00% FHA APR is not comparable to a 6.00% conventional APR.

Step 3: Check APR sensitivity to fees

Small rate differences with big fee differences matter:

• 0.125% rate difference = ~$25/month on $300K loan
• $3,000 fee difference = break-even in 10 years

If you’re refinancing or selling within 5–7 years, prioritize low fees over low APR.

Step 4: Ask about rate locks and APR guarantees

APR can change if:

• Your credit score drops before closing
• You change loan amount or down payment
• Lender adjusts fees after initial quote

Ask: “Is this APR locked? What could cause it to change?”

APR Red Flags: When to Walk Away

Red flag 1: APR is 0.50%+ higher than rate

This suggests heavy fees or points. Unless you’re buying the rate down intentionally, question every fee.

Red flag 2: Lender refuses to provide APR upfront

Some lenders only quote rate and say, “We’ll calculate APR later.” Walk away. Federal law requires APR disclosure.

Red flag 3: APR changes significantly between quote and Loan Estimate

If you’re quoted 6.25% APR verbally but the Loan Estimate shows 6.60%, demand an explanation. You may have been bait-and-switched.

Red flag 4: “Zero-cost refinance” with APR 0.75%+ higher than rate

Zero-cost refis roll closing costs into a higher rate. That’s fine—but the APR should reflect it. If APR is way higher than rate, the lender is padding fees.

Texas-Specific APR Considerations

1. Texas-Specific Fees

Texas has unique closing costs:

• Texas Homestead Protection: Certain restrictions on cash-out refinancing (affects APR on cash-out loans)
• Title insurance rates: Fixed by state; shop title companies for service, not price
• Texas Property Code Section 50(a)(6): Limits cash-out refis to 80% LTV, which can affect APR if you’re forced into a higher rate tier

2. Texas Credit Union Pricing

Texas credit unions often beat national lenders by 0.125%–0.25% APR because they have lower overhead and keep loans in-portfolio.

Examples:

• UFCU (University Federal Credit Union, Austin)
• Randolph-Brooks Federal Credit Union (San Antonio)
• Texas Trust Credit Union (Dallas)

Ask: “What’s your APR for my profile?” Then compare to big banks.

3. Texas Jumbo APR Spreads

Jumbo loans ($766,550+ in most Texas counties) have wider APR spreads than conforming loans. Lenders price jumbo based on risk appetite, so shopping is critical.

Real example (December 2025, $900K jumbo, 740 credit, 20% down):

• Lender A: 6.50% rate, 6.75% APR
• Lender B: 6.75% rate, 6.85% APR
• Lender C: 6.625% rate, 6.65% APR (best APR)

Lender C wins despite not having the lowest rate.

How to Negotiate APR in Texas

Tactic 1: Show competing Loan Estimates

Print 2–3 Loan Estimates and ask, “Can you match this APR?” Lenders will often lower fees or offer lender credits to win your business.

Tactic 2: Ask for lender credits

Lender credits are rebates that offset closing costs. You accept a slightly higher rate in exchange for $2K–$5K in credits.

Example:

• Option 1: 6.00% rate, $5,000 fees → APR 6.30%
• Option 2: 6.125% rate, $2,000 lender credit (net $3,000 fees) → APR 6.25%

Option 2 has a lower APR and saves you $2,000 upfront.

Tactic 3: Challenge junk fees

Ask to remove or reduce:

• Administrative fees
• Document prep fees
• Rate lock fees

Say: “Lender B doesn’t charge this fee. Can you waive it?”

Tactic 4: Negotiate points

If a lender is quoting 1.5 points to hit a low rate, ask, “What’s the rate with 0 points?” Then compare APRs. Often, paying points doesn’t make sense unless you hold the loan 7+ years.

Real Texas Borrower Wins

Win 1: Houston Conventional Borrower

Initial quote: 5.875% rate, $9,200 fees, 6.45% APR After shopping: 6.00% rate, $2,800 fees, 6.20% APR Savings: $6,400 upfront, lower long-term cost

Win 2: Dallas FHA Refinancer

Lender A: 6.25% rate, 6.85% APR (heavy origination fee) Lender B: 6.375% rate, 6.65% APR (lower fees) Choice: Lender B. Monthly payment $18 higher but saves $3,200 upfront. Break-even in 15 months.

Win 3: Austin Jumbo Buyer

Shopped 5 Texas lenders:

• Range: 6.50%–7.00% rate
• APR range: 6.65%–7.35% Locked with credit union at 6.625% rate, 6.65% APR Saved 0.70% APR vs. worst quote = $320/month

The Bottom Line

Rate is marketing. APR is truth.

When shopping Texas mortgage lenders:

1. Always ask for APR, not just rate
2. Compare Loan Estimates side-by-side (pages 1–2)
3. Question fees above $3,000 for a $300K loan
4. Negotiate junk fees and ask for lender credits
5. Model break-even if you’re paying points or taking a higher rate for credits

A 0.25% lower APR on a $300K loan saves you $15,000+ over 30 years. That’s worth 30 minutes of comparison shopping.

Next step: Get 3+ Texas lender quotes on Browse Lenders, compare APRs, and lock the real lowest cost—not the advertised lowest rate.