APR Calculator

Because APR includes fees that the interest rate doesn't:

Interest rate only reflects:

• The cost of borrowing the money itself
• Applied to your outstanding loan balance monthly
• Determines your monthly payment amount

APR also includes:

• Origination fees ($1,500-5,000)
• Discount points (each point = 1% of loan)
• Mortgage broker fees
• Upfront mortgage insurance (FHA MIP, VA funding fee)
• Prepaid interest charges

How fees become part of APR:

• APR spreads your upfront fees across the entire loan term
• It calculates: "What interest rate would produce the same total cost?"
• $5,000 in fees on a $320K, 30-year loan adds about 0.15% to APR
• $10,000 in fees adds about 0.30%

When rate equals APR:

• Only if the loan has zero prepaid finance charges
• Extremely rare — almost never happens
• Some credit unions or no-cost loans come close

Points trade upfront cash for a lower monthly payment. The key question is: how long until you break even?

Example on $320,000 loan:

No points: 6.75% rate

• Payment: $2,076/month
• Upfront cost: $0 for points

1 point ($3,200): 6.50% rate

• Payment: $2,023/month
• Monthly savings: $53
• Break-even: $3,200 / $53 = 60 months (5 years)

2 points ($6,400): 6.25% rate

• Payment: $1,970/month
• Monthly savings: $106
• Break-even: $6,400 / $106 = 60 months (5 years)

Pay points if:

• You're staying in the home longer than the break-even period
• You have cash that won't earn more elsewhere
• You want the lowest possible monthly payment
• You're in a high tax bracket (points may be deductible)

Skip points if:

• You might sell or refinance within 5-7 years
• You'd rather invest the cash (potential for higher returns)
• Cash reserves are tight after down payment
• You could use that money to reduce PMI with a larger down payment

APR makes comparison simple — but consider the full picture:

Step 1: Get the Loan Estimate from each lender

• Required within 3 business days of application
• Standardized format — easy to compare line by line
• APR is on page 3

Step 2: Compare APRs

• Lower APR = lower total cost over the full loan term
• This is the simplest way to compare

Step 3: But consider your timeline

• APR assumes you keep the loan for 30 years
• Average homeowner stays 7-10 years
• High-fee, low-rate loans need time to pay off the upfront cost

Example comparison:

Lender A: 6.50% rate, $8,500 fees, 6.78% APR

• Payment: $2,023/month
• Total cost if keep 30 years: $737,780
• Total cost if sell in 7 years: $178,434

Lender B: 6.75% rate, $3,000 fees, 6.85% APR

• Payment: $2,076/month
• Total cost if keep 30 years: $750,360
• Total cost if sell in 7 years: $177,384

Result: Lender A wins over 30 years (lower APR). But Lender B wins if you sell within 7 years (lower upfront costs). Always factor in how long you'll actually keep the loan.

APR doesn't capture all closing costs — here's what's excluded:

NOT included in APR:

• Title insurance and title search fees
• Appraisal fee
• Home inspection
• Survey costs
• Attorney fees (in some states)
• Recording fees
• Prepaid property taxes and insurance
• HOA transfer fees

Included in APR:

• Origination fee / underwriting fee
• Discount points
• Mortgage broker fees
• Upfront mortgage insurance (FHA MIP, VA funding fee)
• Prepaid interest (per-diem interest)

Why this matters:

• Two loans with the same APR can have different total closing costs
• The excluded costs still come out of your pocket at closing
• Always compare total closing costs AND APR
• Check Section A vs Section B on your Loan Estimate

APR varies by loan type, credit score, and market conditions:

Typical APR ranges (as of 2025):

• 30-year fixed conventional: 6.5-7.5% APR
• 15-year fixed conventional: 5.75-6.75% APR
• FHA 30-year: 6.5-7.5% APR (includes MIP)
• VA 30-year: 6.0-7.0% APR
• ARM (5/1): 5.5-6.5% initial APR

What affects your APR:

• Credit score: 760+ gets best rates; below 680 adds 0.5-1.5%
• Down payment: 20%+ gets better rates than 3-5%
• Loan type: VA and conventional usually beat FHA on APR
• Lender fees: Shop 3-5 lenders; fees vary significantly
• Points: Paying points lowers rate but APR may not change much

How to get the lowest APR:

• Boost credit score above 740 before applying
• Put 20%+ down to avoid PMI
• Shop at least 3-5 lenders (rate can vary 0.5%+)
• Negotiate fees — origination fees are always negotiable
• Lock your rate when you see a good offer

APR on ARMs is less useful because it's based on assumptions:

How ARM APR is calculated:

• Uses the initial rate for the fixed period (e.g., 5 years for a 5/1 ARM)
• Then assumes the rate adjusts based on the current index + margin
• Projects this forward for the remaining 25 years
• Calculates a blended average — the APR

Why it's misleading:

• Nobody knows what rates will be in 5 years
• The APR assumes today's index rate continues forever
• Actual costs could be much higher or lower
• Most ARM borrowers refinance or sell before adjustments

How to evaluate ARMs instead:

• Compare the initial fixed rate and payment
• Look at the worst-case scenario (rate cap)
• Calculate: "Can I afford the maximum adjusted payment?"
• Plan your exit strategy (sell or refi before adjustment)

When ARMs make sense despite APR uncertainty:

• You're confident you'll sell or refinance within the fixed period
• Initial rate saves 1%+ vs fixed rate
• You can handle the worst-case payment
• You believe rates will be lower in 5-7 years