How to use the APR calculator
There are two tools. APR takes one loan and shows its true annual cost. Compare two offers puts a low-rate, high-fee offer next to a higher-rate, low-fee one and finds the month where one overtakes the other.
- Loan amount and interest rate. Use the amount you borrow and the note rate, the rate your payment is calculated on. Both are on your loan estimate or offer letter.
- Term in months. 360 for a 30-year mortgage, 180 for 15 years, 36 to 84 for most personal and car loans.
- Origination fee or points as a percentage of the loan. One discount point is 1% of the loan amount.
- Other prepaid finance charges in dollars: underwriting, processing, broker fees, prepaid interest.
- Expected repayment month, if you may sell, refinance or pay off early. This is optional.
- How the fees are paid. Taken from the proceeds or paid at closing, or added to the balance.
The chart and table show the APR for origination fees from 0 to 4 points, with the effective rate if you repay early.
How APR is calculated
The payment comes from the note rate. The APR is the rate at which those payments exactly repay the money you actually receive, after the fees:
Amount financed = Loan amount − Prepaid finance charges
Solve for r: Amount financed = Σ M ÷ (1 + r)t, t = 1 … n
APR = r × 12P is the balance the payment is calculated on, i the note rate divided by 12, n the number of monthly payments, and r the monthly rate that discounts the payments back to the amount financed. If the fees are added to the loan, P includes them and the amount financed is the original loan amount.
There is no closed formula for r, so the calculator solves for it numerically. The finance charge is the total of all payments minus the amount financed: every dollar of interest and fees over the life of the loan.
A worked example
You borrow $300,000 at 6.5% for 360 months, with a 1% origination fee and $2,500 of other lender charges. The fees total $5,500.00 and are paid at closing.
The monthly payment is $1,896.20, set by the note rate alone. You owe the full $300,000 but receive only $294,500.00 in value. Solving for the rate that links those two figures gives an APR of 6.68%.
Over the full term the finance charge is $388,133.47. The fees add 0.18% to the yearly rate, or about $183.33 a year if you keep the loan for all 360 months.
If you repay the loan after 84 months, through a sale or a refinance, the same fees are spread over fewer payments. The true cost rises to 6.84%.
APR versus interest rate versus APY
Mixing up these three numbers is a common source of bad comparisons.
- Interest rate (note rate): what the lender charges on the balance. It sets the payment.
- APR: the interest rate plus the upfront finance charges, spread over the full term. It is the number to compare across lenders who charge different fees. US law requires lenders to disclose it.
- APY or effective annual rate: the APR with monthly compounding included. It is always a little higher for a loan with monthly payments. The example’s 6.68% APR is 6.89% as an APY.
The APR has a blind spot: it assumes you keep the loan for its full term. Most 30-year mortgages are refinanced or paid off in a sale long before then. The fees then weigh on fewer years, and the real cost is higher than the APR suggests. That is why the calculator shows the rate at your expected repayment month.
How the origination fee moves the APR
On the example mortgage, with the other charges held at $2,500:
| Origination fee | Total fees | APR | If repaid after 7 years |
|---|---|---|---|
| None | $2,500.00 | 6.58% | 6.66% |
| 1 point | $5,500.00 | 6.68% | 6.84% |
| 2 points | $8,500.00 | 6.78% | 7.04% |
| 4 points | $14,500.00 | 6.98% | 7.42% |
On a 30-year loan each point adds only a small amount to the APR, because the fee is spread over 360 payments. Repaid early, the same point costs much more per year. Repaid after three years, a one-point loan costs 7.19%.
Short loans feel fees far more. A $10,000 personal loan at 10% over 60 months with a 5% origination fee deducted from the proceeds has an APR of 12.24%. Repaid after two years, the effective rate is 13.37%. If the fee is added to the balance instead, you receive the full amount but pay interest on the fee. The payment rises to $223.09 and the APR is 12.13%.
Points or no points: comparing two offers
Lenders often let you trade a lower rate for higher upfront fees. The Compare two offers tool works out the total cost of each offer for every month you might repay. That total is fees plus payments plus the payoff balance, minus the money borrowed.
In the example, offer A charges 2% in fees at 6.25%, and offer B charges nothing at 6.75%. Offer A’s payment is $98.64 lower. Offer A has the lower APR, 6.44% against 6.75%, but it only becomes cheaper after 48 months. Keep the loan for the full term and offer A saves $29,511.37. Repay it within the first few years and offer B wins.
The lower APR is not always the better deal: it depends on how long you will really keep the loan.
What this calculator does not include
- Regulation Z details. The calculator counts whatever fees you enter. It does not decide which charges the law treats as finance charges, and it does not reproduce the exact disclosure rules for odd first periods, mortgage insurance or adjustable rates.
- Variable rates. An adjustable-rate loan’s APR assumes today’s index stays put, which it rarely does.
- Costs outside the loan. Title insurance, appraisal, escrow deposits and taxes affect your cash at closing but are usually not finance charges.
- Prepayment penalties. Some loans charge a fee for early repayment, which raises the early-repayment cost further.
Your lender’s Truth in Lending disclosure or loan estimate gives the official APR.