Annual Percentage Rate (APR)

Annual percentage rate is the yearly cost of a loan including interest and certain fees, spread over the term. It is used to compare loan offers. DSCR lenders qualify the loan on the note rate, not the APR, so the ratio uses the payment and ignores upfront costs.

Points and lender fees lower the money the borrower actually receives without changing the payment. On the site example, paying one point, or $3,750, on a $375,000 loan at 7.5% gives an APR of about 7.6%. The monthly payment is still $2,622 and the DSCR is still 1.20.

That is the reason to look at both numbers. The note rate drives the ratio and the approval. The APR shows what the loan really costs over its life. Two DSCR quotes with the same payment can carry very different fees, and the APR is where that shows up.

Further reading: Annual Percentage Rate (APR) on Wikipedia.