The annual percentage rate (APR) is the yearly cost of a loan including certain fees, expressed as a rate. The Consumer Financial Protection Bureau explains that a mortgage APR reflects the interest rate plus points, broker fees and other charges, so it is usually higher than the note rate and is the better number for comparing offers. A $200,000, 30-year loan at 6.5% with $4,000 of upfront fees has an APR of about 6.695%.
The calculation works like this. Your payment is based on the full loan amount, but you effectively receive the loan minus the fees. The APR is the rate at which the payments exactly repay that smaller "amount financed". Regulation Z, Appendix J defines this actuarial method, and this calculator solves it by iteration in the same way.
How to use the apr calculator
- Enter the loan amount and the note (contract) interest rate.
- Enter the term.
- Enter the prepaid finance charges: discount points, origination fees and other lender charges that count toward the APR. Your Loan Estimate lists them.
- Choose whether the fees are paid at closing or deducted from the proceeds, or instead added to the loan balance.
Formula
There is no closed-form answer, so the APR is found by bisection to many decimal places. Appendix J describes the same iteration. When fees are financed, the payment is based on L + fees and the amount financed is L.
Worked example
$200,000 for 30 years at 6.5% with $4,000 of points and fees paid at closing.
- Payment on $200,000: r = 0.065 ÷ 12; PMT = $1,264.14.
- Amount financed: $200,000 − $4,000 = $196,000.
- Solve for the rate at which 360 payments of $1,264.14 repay $196,000: APR ≈ 6.695%.
- Total finance charge: $1,264.14 × 360 − $196,000 ≈ $259,089.
Using APR to compare offers
Compare APRs only for loans with the same term and type. Paying points lowers the note rate but raises the fees, and the APR combines both effects. The APR assumes you keep the loan for the full term. If you expect to sell or refinance within a few years, upfront fees cost you more per year than the APR suggests. Once you know the rate, the mortgage calculator or loan calculator gives the full payment picture.
Which charges count as finance charges is set by Regulation Z. Title insurance, appraisal and some third-party fees on mortgages are excluded, so lenders' APRs may include different items than a simple "all fees" total.
Caveats and assumptions
- Assumes a fixed rate, equal monthly payments and no odd first period. Lender disclosures follow Regulation Z exactly and may differ slightly.
- Only enter fees that count as finance charges; excluded third-party costs do not belong in the APR.
- Adjustable-rate and interest-only loans need more complex APR calculations.
- This is an estimate for comparison, not a Truth in Lending disclosure.
Frequently asked questions
What is the APR on a $200,000 loan at 6.5% with $4,000 in fees?
About 6.695% for a 30-year term with the fees paid upfront.
What is the difference between interest rate and APR?
The interest rate sets your payment. The APR adds points and certain lender fees and expresses the total as a yearly rate, so it is usually higher.
Why is APR higher on a shorter loan with the same fees?
The fees are spread over fewer years, so they add more per year to the cost of borrowing.
How is APR calculated?
Find the rate at which the scheduled payments exactly repay the amount financed (loan minus prepaid finance charges). Regulation Z, Appendix J gives the actuarial method.
Is a lower APR always better?
For the same term and loan type, usually yes, if you keep the loan long enough. If you plan to refinance soon, compare the upfront costs directly.
Sources
- CFPB — Regulation Z, Appendix J: APR computations for closed-end credit — actuarial method and iteration
- CFPB — What is the difference between a mortgage interest rate and an APR? — what APR includes
- CFPB — What is a Loan Estimate? — where lenders disclose the APR and fees
This calculator gives estimates for planning and education only. It is not financial, tax or investment advice. Your lender, card issuer, employer or tax authority uses its own terms, fees and rounding, so confirm figures with them before deciding. See our disclaimer and how we build and check calculators.