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The contract rate is the interest stated in the loan document as compared to the annual percentage rate (APR).
The APR is a useful information that is expressed as a percentage that shows how much a borrower would pay for a loan.
Because the APR is standardized by the way it is calculated, it is easier for borrowers to compare one mortgage against another.
Also known as the face interest rate, the contract rate on a loan can show a borrower how much different a lender calculates interest charges compared to industry standard APR.
It can also be used as a variable to work out what is the market value of a mortgage.
Borrowers should be mindful that even though APR is a common way to express the costs of a loan, how a lender charges is up to their own discretion and might not reflect how APR is calculated.