Mortgage Apr Calculator

Mortgage Apr Calculator Website Information

When you apply a mortgage you will the lender state an interest rate and the APR. APR stands for the annual percentage rate, which is defined as an annualized cost of credit. This means that the APR is the rate that you will actually be paying on your mortgage because this figure includes upfront costs such as points, closing costs, and prepaid interest. Mortgage lenders are required by law to reveal the APR to borrowers when quoting the interest rate. Because the APR includes additional costs besides the actual amount of the mortgage, it is higher than the interest rate that is used to calculate the monthly mortgage payments.

 

An APR is a universal measure of the net effective cost of borrowing -- "the actual present value of those funds over the length of the contract." In other words, the APR answers the basic question: "Is it worth it to pay more upfront to get a lower rate?" or "is it worth to pay less upfront but get a higher rate?"

 

There are several basic terms that are used to calculate mortgage APR rates. It is important that borrowers fully understand the fundamentals of mortgage APR calculations. A combination of various factors will create different types of mortgages, or APR rates.

 

Annual percentage rate (APR) is a standard calculation used by lenders. It is designed to help borrowers compare different loan options. For example, a loan with a lower stated interest rate may be a bad value if its fees are too high. Similarly, a loan with a higher stated interest rate with very low fees could be an excellent value. APR calculations incorporate these fees into a single rate.

 

Mortgage amount is the original or expected balance for your mortgage.

 

Term refers to the number of years over which you will repay a loan. The most common mortgage terms are 15 years and 30 years.

 

Interest rate is the Annual interest rate for this mortgage.

 

Monthly payment is the monthly principal and interest payment, or PI.

 

Total payments include of all monthly payments over the full term of the mortgage. This total payment amount assumes that there are no prepayments of principal.

 

Total interest is the total of all interest paid over the full term of the mortgage. This total interest amount assumes that there are no prepayments of principal.

 

Loan origination percent: The percent of your loan charged as a loan origination fee. For example, a 1% fee on a $120,000 loan is $1,200.

 

Points paid: Total number of "points" purchased to reduce your mortgage's interest rate. Each "point" costs 1% of your loan amount.

 

Other fees to include refer to any other fees that should be included in the APR calculation. These fees can vary by lender, but at a minimum usually consist of prepaid interest.

 

Let's make an example APR calculation on a mortgage of $100,000, 30 year term, 6.25% interest rate, and closing costs of 1% origination fee ($1,000) and 1 points paid (1,000.)

 

The first step is to calculate an APR payment amount. This is done by adding your closing costs to your loan amount, and then calculating a new monthly payment at your loan's interest rate. In this case, if you borrowed ($100,000.00 + $2,000.00) at 6.250% for 30 years, your APR monthly payment would be $628.03. Note that this is different than your actual monthly payment of $615.72.

 

The second step is to calculate what interest rate produces a monthly payment equal to the APR payment amount. In this specific case, we calculate the interest rate that would require a $628.03 monthly payment on a loan of 30 years in the amount of $100,000.00.

The result is 6.439% which is the APR for your loan.

 

It is important to note that the APR for a loan with no fees is always the same as the stated interest rate. If you have a loan where the lender pays you for taking a higher interest rate, your APR for that loan may be lower than the stated interest rate.