I’m often amazed at how little the importance between the interest rate on a mortgage and the APR on a mortgage is discussed within the realm of personal finance.

Basically, the interest rate is the eye candy for the home buyer and the APR is the number the lender/mortgage broker hopes you won’t ask about. But instead of giving a boring blog post talking about trivial things as such as math, must know personal finance equations, and getting the most bang for your buck — that you’ll probably forget about five minutes after closing this window — perhaps it’s best to show you firsthand at how badly how you can be misled if you don’t run the numbers yourself or by calculating the True Cost of Mortgage (e.g. lender fees, points, principal repayment, interest paid over time, etc.) by using a captured screenshot from Zillow.com’s Mortgage Marketplace.

As you can see in the red outlines, many lenders will offer you a lower interest rate if you’re willing to pay points at the closing table, which will, in theory, lower the total amount paid to the lender over time. Thus, saving you money over the long run.

However, what you may not be aware of is that a few lenders can’t, or won’t, adjust the APR even though you’re putting more money in their pocket at the closing table.

In this case, it would appear the lender only lowered the APR 0.041%, even though you paid an additional $1372 ($2097 for 3.625% minus $725 for 3.750%) to lower the interest rate by 1/8th (0.125%) basis points. Moreover, you’re only saving a measly $8 per month on your mortgage payments.

When comparing the True Cost of the Mortgage in green outlines, you can see that paying points at the closing did not lower your costs — it actually increased them!

In this case, you’re actually paying $36 more over the lifetime of the loan, even though you paid almost three times the lender’s stated fees for the higher interest rate loan of 3.75%. So even though you shelled out an additional $1372 to lower your interest rate, you ended up paying an additional $36 after 15 years when the property would be paid in full.

Not exactly how the process is supposed to work. Is it?

Bottom line: always keep an APR in mind when the lender offers to lower your interest rate by paying points and never assume the lower interest rate package your lender/broker offers you is automatically the best deal. So next time, instead of focusing how much your lender/broker will reduce your interest rate, also ask how much that lowers the APR. Only then, can you get a real estimation on the total cost of your mortgage over the lifetime of the loan after lender fees, closing costs and total interest paid are all included in one lump sum.