Definition
The annual percentage rate (APR) is a standardized measure of the true cost of borrowing: it incorporates the nominal interest rate AND certain mandatory fees (e.g., origination fees, credit insurance premium in some countries). It is expressed on an annual basis to facilitate comparison between products of different durations.
In Canada, the Interest Act requires mortgage contracts to express the effective rate on a semi-annual non-compounding basis — which is why Canadian mortgage rates are presented differently from US rates. For example, a mortgage rate of 5.00% semi-annual non-compounding equals an effective annual rate of approximately 5.0625%.
When comparing mortgage offers, always verify whether origination, appraisal, or insurance fees are included in the advertised rate. A rate of 4.90% with $1,500 in fees can cost more than 5.00% with no fees over a 5-year term.