APR Calculator
The rate on the paperwork isn't the whole story. Enter the loan amount, upfront fees, and note rate to find the true APR — the honest yearly cost of the loan.
- Amount borrowed$300,000.00
- Minus upfront fees−$6,000.00
- Cash actually received$294,000.00
APR spreads the $6,000 in upfront fees across the life of the loan, so it's the honest number for comparing offers: a lower note rate with big fees can cost more than a higher rate with no fees. Lenders must disclose APR by law (Truth in Lending). This estimate covers origination, points, and prepaid finance charges only.
How the math works
The note rate — the "interest rate" on the offer — only prices the borrowed money. It ignores the $4,500 the lender also collected at closing. APR fixes that by rolling upfront finance charges into one yearly rate.
Here's the logic: take the loan amount and subtract prepaid finance charges (origination fees, discount points, prepaid interest, mortgage insurance premiums). That's the amount financed — the cash you effectively received. Then find the single annual rate that makes the present value of all your monthly payments equal that amount financed. In plain terms: APR is the rate you'd have to be charged on the smaller, fee-reduced amount to produce the same payment. More fees mean a smaller amount financed supporting the same payment — which means a higher APR.
Fees that count: anything the lender keeps — origination, points, underwriting, prepaid interest. Fees that don't count toward legal APR: third-party charges like appraisal, title, and recording (this calculator follows the same convention). Because the math spreads fees evenly across the entire term, APR quietly assumes you'll keep the loan for the full 30 (or 15) years — its biggest blind spot, and the reason short-term borrowers should look past it.
Worked example
Two offers on a $300,000, 30-year loan. Offer X: 6.50% note rate with $4,500 in lender fees — payment $1,896.20/month, APR 6.646%. Offer Y: 6.75% with zero fees — payment $1,945.79/month, APR 6.75%.
The APRs tell the true story: X is cheaper despite the fees. Over 30 years X costs $687,132 total (payments plus fees) versus $700,486 for Y — a $13,354 win for the "lower rate plus fees" offer.
But watch the horizon assumption: refinance or sell after 5 years and X has cost you $118,272 (fees plus 60 payments) versus $116,748 for Y — X loses by $1,524. The fees never got enough years to pay for themselves. APR is a full-term promise; short stays break it.
What to watch for
- Never compare APRs across different loan amounts or terms — the math only works apples-to-apples.
- "No closing cost" loans aren't free. The lender recoups it in a higher rate. Ask for both quotes and compare APRs.
- Points are a bet on staying put. Divide the points cost by the monthly savings — that's your break-even in months. If it's 7+ years out, think hard.
- The Loan Estimate APR is the legal one. Lenders must disclose it under the Truth in Lending Act. If an advertised APR and the Loan Estimate differ, trust the Loan Estimate.
- APR ignores what happens after closing. Expiring rate buydowns, ARM adjustments, and prepayment penalties all live outside the APR number — read the note, not just the disclosure.
Frequently asked questions
What is APR and how is it different from the interest rate?
The note rate (interest rate) only prices the borrowed money. APR spreads the loan's upfront fees — origination, points, prepaid finance charges — across the loan term, giving one number that reflects the true yearly cost. APR is almost always higher than the note rate when fees exist.
Why does APR matter when comparing loans?
Because a lower rate with big fees can cost more than a higher rate with no fees. APR puts every offer on the same scale: the loan with the lower APR is cheaper if you keep it the full term. Lenders are legally required to disclose APR (Truth in Lending Act) precisely so borrowers can compare apples to apples.
Does APR assume I keep the loan the full term?
Yes — and that's its main limitation. APR spreads upfront fees over the entire term, so if you sell or refinance early, the effective cost of those fees is higher than the APR suggests. For short stays, compare total fees plus payments over your actual horizon instead.
What fees are included in APR?
Finance charges: origination fees, discount points, prepaid interest, and mortgage insurance premiums. Third-party fees like appraisal, title, and recording are generally excluded from the legal APR definition — this calculator follows the same convention and counts lender/upfront finance charges.
Can APR ever be lower than the interest rate?
Rarely, but yes — it can happen with certain adjustable-rate mortgages where the initial rate sits below the fully indexed rate, or with loans where lender credits offset the fees. For standard fixed-rate loans with any upfront fees, APR is higher than the note rate.
How do discount points affect APR?
Paying points (prepaid interest, where 1 point = 1% of the loan) lowers your note rate but they're counted as a cost in the APR. Points only pay off if you keep the loan past the break-even point — typically 5–8 years. This calculator's APR assumes you keep the full term.
Why does the APR on my Loan Estimate differ from this calculator?
Small differences are normal: lenders may classify certain fees differently, include mortgage insurance premiums, or use exact day counts. The Loan Estimate's APR is the legally binding disclosure — use this calculator to sanity-check offers before you apply, and the Loan Estimate to make the final call.
Does a lower APR always mean a cheaper loan?
Only if you keep the loan the full term and the loan amounts are identical. APR spreads upfront fees over the whole term, so if you sell or refinance in 5 years, a higher-APR no-fee loan may actually cost less. For short horizons, compare total cash paid over your actual timeframe instead.