APR Calculator
Uncover the real annual cost of borrowing. While lenders promote low nominal interest rates, the Annual Percentage Rate (APR) incorporates upfront closing fees, points, and administrative charges to reveal true debt expense.
Gross amount borrowed on paper
Base contractual interest rate stated on the loan note
Repayment period duration
Origination points, underwriting fees, and mandatory prepaid finance charges
True annualized cost of credit including upfront fees
How to Use This Calculator
- Enter the total principal balance borrowed.
- Enter the nominal interest rate quoted on your loan estimate sheet.
- Select the loan term (e.g., 30 years for conventional mortgages, 5 years for autos).
- Input all lender fees, origination points, and processing costs.
- Compare the resulting APR directly across competing lender proposals.
Formula & Calculation Methodology
APR represents the internal rate of return (IRR) that equates net disbursed cash proceeds to the discounted present value of all future scheduled monthly installments.
Worked Example
$200,000 loan at 6.5% interest over 30 years with $4,000 in closing fees
Frequently Asked Questions
Why is the APR higher than the interest rate?↓
The interest rate only reflects the ongoing percentage charged on the remaining balance. APR incorporates both that interest and the upfront fees (amortized over the loan term), making it higher whenever upfront costs exist.
When does comparing APR fail?↓
APR assumes you keep the loan for its entire full term (e.g. 30 years). If you refinance or sell the home within 5 years, upfront closing fees are compressed into a much shorter timeframe, making the true effective APR significantly higher.
What fees are legally included in federal APR disclosures?↓
Under the Truth in Lending Act (TILA), APR must include loan origination fees, discount points, processing fees, underwriting fees, and private mortgage insurance. It excludes third-party title and appraisal fees.
What is a "zero-closing-cost" loan?↓
A zero-closing-cost loan eliminates upfront cash fees by charging a higher nominal interest rate or rolling the fees into the principal, resulting in an APR that closely matches the interest rate.
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Source Citation & Disclaimer
Informational tool only; not licensed tax, legal, or financial advice.