Definition
The Annual Percentage Rate (APR) is a standardized indicator of the total cost of credit, including the nominal interest rate AND all mandatory fees related to the loan.
**Included components**: - Nominal interest rate - Origination fee - Mandatory credit insurance fees (if applicable) - Mandatory appraisal fees - Other mandatory fees to obtain the loan
**Not included**: - Optional fees (voluntary life insurance, balance protection) - Transfer duties, notarial fees (not related to the credit) - Late fees
**Comparative utility**: Two loans with the same 5.5% interest rate but different fees will have different APRs — APR allows an 'apples-to-apples' comparison.
**Canadian mortgages**: In Canada, banks are required to disclose the 'annual percentage rate' (APR) under consumer protection legislation. For mortgages, the APR notably integrates the CMHC insurance premium into the calculation if applicable.
**Limitation**: APR assumes the borrower holds the loan to its full term. For loans repaid earlier (mortgages renewed every 5 years), APR underestimates the real cost if initial fees are high.