Difference between the rate and the APR is all the financing fees. Add the financing fees to the interest rate and spread it over the term of the loan.
Interest rate is easy to calculate. Basic cost of money.
APR is the total cost of financing, including many fees such as points, origination, buy downs, processing, etc. Not all APRs are calculating taking into account the same expenses.
APR was developed to help borrowers compare loans, but in reality, it doesn't work.
The APR on a low cost loan may be calculated in such as fashion as to appear higher than a high cost loan such as a pay option ARM.
It only works to compare the same loan product. So to compare fixed rate loans for the same amortization period, it should work. Comparing adjustables is nearly impossible as the assumption on the interest rate is that the rate doesn't change as often as it may in reality.
Keep in mind that most people only keep their loans for 2-4 years before refinancing.
I know it sounds complicated, that's because it is. Hopefully this helps!
Experience, CA Broker