Hello L. The APR is higher because it takes the cost of getting the loan into consideration. While your monthly interest payments are still based on the 6.875%, because you had to pay something to get the loan, the actual cost of the loan is more than the 6.875%. For instance, if you get a $250,000 loan and you pay $5,000 to get the loan, then you'll pay 6.875% interest every month based on $250,000, but the bank has to tell you what the annual interest rate is if they considered the $5,000 you paid to get the loan as interest. The difference between the fixed rate and the APR is calculated by a computer program and takes all kinds of different factors into account. Your loan agent should be able to explain this better to you and he/she may even have the program to convert the cost of getting the loan into a percentage rate. I hope this makes sense. I know I had the same question when I purchase my first home many years ago and my loan agent was not able to give me an exact answer. He explained it to me, but did not have a program to calculate the APR.