How to use this calculator
- Enter the loan amount, the quoted interest rate and the term.
- Enter fees that are added to (financed into) the loan.
- Enter fees paid upfront at closing, such as origination fees and points. Exclude costs you'd pay anyway, such as taxes or a home appraisal.
Formula
APR is the interest rate that makes the present value of all payments equal to the amount you actually receive (the amount financed). Because fees reduce what you receive without reducing your payments, the APR is higher than the stated rate. It is solved numerically.
Amount financed = loan amount − prepaid fees
Amount financed = Σ Payment / (1 + APR/12)^k, for k = 1…n
Example
- $200,000 at 6.5% for 30 years: payment = $1,264.14.
- $4,000 in upfront fees means the amount financed is $196,000.
- Solving 196,000 = Σ 1,264.14 / (1 + APR/12)^k gives an APR of about 6.69%.
Frequently asked questions
Why compare APR instead of interest rate?
Two loans with the same rate can have very different fees. APR folds fees into a single yearly rate, making offers comparable.
Is APR the same as APY?
No. APR is used for borrowing and does not compound fees into a yearly yield. APY is used for savings and includes compounding.
Does APR assume I keep the loan for the full term?
Yes. If you refinance or sell early, upfront fees are spread over fewer years, so your effective cost is higher than the APR.