APR Calculator

What APR actually measures

The note rate tells you how interest accrues on your balance. It says nothing about what you paid to get the loan. APR closes that gap by asking a different question: if the fees had been deducted from your loan proceeds rather than charged separately, what rate would produce the payment you are actually making?

This calculator solves it numerically — there is no closed-form answer — using Newton-Raphson iteration on the net loan amount. A useful sanity check falls straight out of the method: enter zero fees and the APR returns exactly the note rate, because with no fees the net loan and the loan are the same number.

A worked example, and the comparison it makes possible

Take a $400,000 loan at the Freddie Mac 30-year average of 6.71% for the week ending September 3, 2026. The monthly payment is $2,583.77.

Now a second offer with a lower rate and heavier fees: 6.46% with origination $1,500, two points ($8,000) and $2,700 of other fees, so $10,700 in total. The payment falls to $2,517.76, and the APR works out to 6.722%.

Offer B charges $4,000 more up front and still wins on APR by 0.153 points. That is exactly the comparison APR exists to make, and it is one almost nobody makes correctly by eye — the higher fee number is the salient one, and it points the wrong way here.

How the spread behaves, and the term trap

The gap between note rate and APR is a direct read-out of how fee-heavy a loan is. On the same $400,000 loan at 6.71% over thirty years, it scales almost linearly with the fees:

A rough rule falls out of that table: on a 30-year loan of this size, every $4,000 of fees adds about a tenth of a point to the APR. If a lender's APR sits far above their note rate, the fees are large whether or not the fee sheet makes that obvious.

The non-obvious part is what happens when the term changes. Take the identical $6,700 of fees onto a 15-year loan at the PMMS 15-year average of 6.04% and the APR comes to 6.305% — a spread of 0.265 points, considerably wider than the 0.165 on the 30-year.

Nothing about the fees changed. They are simply spread over half as many payments, so they weigh more per month. This is why APR must never be compared across terms: the shorter loan looks worse on the spread precisely because it is shorter, which has nothing to do with whether it is a better loan.

Where APR quietly misleads

APR is the best single number available and it is still wrong for most borrowers, for one structural reason: it assumes you keep the loan for its entire term.

Offer B's advantage comes from buying the rate down with points. Those points are paid on day one; the saving arrives $66 a month for thirty years. If you sell or refinance in year four, you paid the extra $4,000 and collected roughly $3,200 of the benefit. APR says B is cheaper. Your bank balance says otherwise.

• ·APR assumes the full term. The shorter your actual holding period, the more it favours the wrong loan. Check the break-even separately with our mortgage points break-even calculator.
• ·Lenders do not all include the same fees. Which charges are finance charges is a matter of rule and interpretation. Two lenders quoting the same loan can publish different APRs.
• ·It breaks on adjustable-rate loans. The APR on an ARM is computed on assumptions about future adjustments that will not happen as assumed.
• ·It ignores everything after closing. Servicing quality, escrow handling and assumability are all invisible to APR and all matter over thirty years.

How to use APR without being misled by it

1. Compare APR only between loans of the same type and term. A 30-year fixed APR against a 15-year fixed APR is not a comparison.
2. Look at the spread, not the level. The gap between note rate and APR tells you how fee-heavy a loan is. Offer A's 0.165-point spread and Offer B's 0.262-point spread say more about the two lenders than either APR does alone.
3. Then check your own horizon. If you will not hold the loan for its full term, re-rank the offers on total cost over the years you will actually keep it.
4. Ask for a fee itemisation, not just the APR. Two loans with identical APRs can have very different cancellable fees.

One tax note worth adding, because points are involved. IRS Publication 936 governs the deduction of home mortgage interest, allowed on the first $750,000 of acquisition debt ($375,000 married filing separately), with a $1,000,000 limit grandfathered for debt incurred before December 16, 2017. The same publication states plainly that the itemised deduction for mortgage insurance premiums has expired — so any lender comparison crediting mortgage insurance with a tax benefit is out of date.

What to do with the number

APR is a screening tool, not a verdict. Used well, it does two jobs and should not be asked to do a third.

The first job is filtering. Line up several offers of the same type and term, and an APR far above the others is telling you the fees are heavy even if the fee sheet is opaque. The second is negotiation: a wide gap between a lender’s note rate and their APR is a concrete thing to ask about, item by item.

The job it cannot do is decide for you, because it assumes you keep the loan for its full term and almost nobody does. Once APR has narrowed the field, re-rank the survivors on total cost over the years you actually expect to hold the loan. That is usually a different ordering, and it is the one that determines what you really pay.