How to use the APR calculator
- Enter the Loan amount ($), the Interest rate (% a year) and the Loan term from your loan offer.
- Type the total Fees and closing costs ($) the lender charges: origination, points, broker and processing fees, and mortgage insurance paid up front.
- Under How the fees are paid, choose At closing if they come out of your proceeds or pocket, or Added to the loan if they are rolled into the balance.
- Read the APR, Monthly payment, Amount financed and Total finance charge.
How APR is calculated
The APR is the yearly rate that makes your payments worth exactly the amount you actually get to use, the actuarial method of 12 CFR 1026.22. For equal monthly payments, the tool finds the monthly rate i that solves
Amount financed = Payment × (1 − (1 + i)−n) ÷ i, APR = 12 × i
The payment comes from the loan amount and the stated rate. Fees shrink the amount financed but not the payment, so they push the APR above the rate. Origination fees, points, broker fees and mortgage insurance count. On mortgages, bona fide charges for title work, appraisal, credit reports and notary services are excluded under 12 CFR 1026.4(c)(7), so leave them out of the fee box.
Worked example with the default numbers
A $200,000 loan at 6.5% for 30 years has a monthly payment of $1,264.14. With $5,000 of fees paid at closing, you receive $195,000.00, the amount financed. The 360 payments total $455,088.98, of which $255,088.98 is interest and $5,000.00 is fees, so the total finance charge is $260,088.98. The APR is 6.745%, which is 0.245 percentage points above the rate.
Limits and edge cases
- It assumes a fixed rate and equal monthly payments. Adjustable-rate, interest-only, balloon and irregular loans need the lender's own disclosure.
- APR assumes you keep the loan for the full term. Refinance or sell early and the fees are spread over fewer months, so the refinance calculator break-even is the better test.
- Totals use the payment before rounding to the cent, so payment times months can differ by a dollar or two.
- Fees paid at closing must be less than the loan amount. Terms round to whole months.
- For a payment with taxes and insurance, use the mortgage calculator; for car loans, the auto loan calculator; for savings rates, the APY calculator.
APR questions people ask
What is the difference between APR and interest rate?
The interest rate is the yearly cost of borrowing the principal. The APR also counts the lender's fees and points, spread over the term, so it is usually higher. On the default loan, a 6.5% rate with $5,000 of fees is a 6.745% APR.
Does APR include closing costs?
Only some of them. Origination fees, discount points, broker fees and mortgage insurance count. On a mortgage, bona fide fees for title services, appraisal, credit reports and notary work are excluded under 12 CFR 1026.4(c)(7), though you still pay them at closing.
Why is my mortgage APR higher than my rate?
Fees act like extra interest. On the default loan, $5,000 of fees cuts what you receive to $195,000 while the payment stays the same as on $200,000, which lifts the yearly cost from 6.5% to about 6.745%.
Is a lower APR always the better loan?
Not always. APR assumes you keep the loan for its full term, so up-front fees look small over 30 years but cost more if you sell or refinance in five. Adjustable-rate loans use today's rate, and different loan types are not directly comparable.
How is APR different if the fees are rolled into the loan?
Choose Added to the loan. You borrow the loan amount plus fees, so the payment rises while the amount financed stays at the loan amount. For $200,000 at 6.5% over 30 years with $5,000 rolled in, the payment is $1,295.74 and the APR is 6.739%.
Sources: Consumer Financial Protection Bureau, 12 CFR 1026.22, 12 CFR 1026.4 and mortgage interest rate versus APR.