Why is the APR considered a principal tool in mortgage comparison?

The APR, or Annual Percentage Rate, is considered a principal tool in mortgage comparison because it reflects the true cost of borrowing. This figure provides a more comprehensive view of what borrowers will ultimately pay for a loan over its entire term. Unlike a simple interest rate that only accounts for the interest charged on the loan, the APR includes both the interest cost and any additional fees or costs associated with the loan, such as points, closing costs, and other charges.

By incorporating these elements, the APR allows borrowers to make more informed decisions when comparing different mortgage offers. It enables them to see beyond just the interest rate and consider the total cost associated with the mortgage. Consequently, a lower APR is generally more favorable, as it signals a lower overall cost of borrowing. This understanding is essential for consumers who wish to avoid hidden costs and ensure they're getting the best deal possible in their mortgage arrangements.