An annual percentage rate (APR) is a term used to describe the annual rate at which interest is paid on an investment. The annual percentage rate calculates the percentage of the principal (the overall amount owed) you will pay each year at a monthly rate. However, APR does not account for the possible compounding interest your loan may incur over a given year. APR is an expressed estimate for the likely interest you will pay in a given year. An APR may also include other charges and fees. For example, the mortgage insurance cost, closing costs, discount points, and loan origination fees.