APR Calculator

This APR calculator gives you the true annual cost of a loan once fees are counted, not the rate printed on the quote. Enter the loan amount, term, interest rate, and any fees, and it returns the real APR along with the payment, the total interest, and everything you hand over across the life of the loan. The second calculator on this page handles U.S. mortgages, where discount points and closing costs commonly push the APR a quarter point or more above the note rate.

What APR means

APR is the yearly cost of borrowing stated as a percentage, with lender fees folded in alongside the interest. Borrow $100,000 for 10 years at 6% and pay $2,500 in upfront fees, and the APR comes out at 6.56% while the note rate stays 6%. That extra half point is what the fees cost you, restated as a rate. Because it collapses interest and charges into one figure, APR is the only number that lets you compare two offers directly.

APR versus the interest rate

The interest rate prices the principal alone; APR prices the principal plus the charges required to get the loan. A lender can advertise 5.75% and take the discount back through a 1.5% origination fee, while a second lender quotes 6% with no fee at all. The second loan is the cheaper one, and only the APR reveals it. When a loan carries no fees, the APR and the interest rate are the same number.

U.S. lenders have to disclose APR under the Truth in Lending Act for this reason. What the law does not do is standardize which charges go into the calculation, so ask each lender for the itemized list sitting behind the percentage before you treat two quotes as equivalent.

Which fees go into a mortgage APR

On a typical U.S. mortgage, seven categories of charge usually get built into the APR:

• Origination points and discount points
• Application, processing, and administration fees
• Underwriting and audit fees
• Mortgage broker compensation
• Mortgage insurance premiums
• Escrow fees and certain closing costs
• Refinance fees

These charges are normally left out, since they are paid to third parties rather than to the lender:

• Appraisal and survey fees
• Title insurance and title search charges
• Builder warranties
• Prepaid escrow items such as property tax and homeowners insurance
• Intangible taxes

Because the split varies by lender, two loans quoted at an identical APR can still cost different amounts in cash at closing. Read the fee lists as well as the percentages.

Where APR breaks down

APR assumes you keep the loan for its full term, and most borrowers do not. Spread $4,000 of upfront cost across 360 monthly payments and it barely moves the rate. Spread that same $4,000 across the 60 payments you actually make before selling the house, and it costs roughly six times as much per month. Homes get sold and mortgages get refinanced long before year 30, so the assumption fails most of the time.

The practical rule that follows: between two loans quoted at the same APR, take the one with the smaller upfront fees whenever there is a chance you pay the loan off early. To see how an early payoff changes the interest total, run the numbers through the Mortgage Calculator.

Fixed APR and variable APR

A fixed APR holds one rate for the entire term; a variable APR moves with a market index. Fixed rates start higher, and that premium buys certainty. Locking one in pays off when market rates are low and likely to climb, because the loan keeps the old rate for 15 or 30 years.

Variable rates follow an index such as the federal funds rate, so they rise when the market rises and fall when it falls. Sitting on top of the index is a credit-based margin the lender sets from your credit profile, and that margin does not move with the market. A thin or damaged credit file adds points to it, which is why two borrowers tracking the same index can hold variable loans several points apart.

Variable makes sense when rates are high and forecast to drop. Term length decides how much any of this matters: a 2-point swing costs far more on a 30-year loan than on a 10-year one, because the balance stays large for so much longer.

APR compared with APY

APR and APY describe the same money from opposite sides. APY, the annual percentage yield, counts interest compounding within the year and is the figure quoted on savings accounts and CDs. APR is quoted on a monthly period and leaves that compounding out of the headline number. At the same underlying rate APY always prints higher, which is why banks advertise APY on deposits and APR on loans.

APY also appears as EAPR (effective annual percentage rate) or EAR (effective annual rate). To turn an APR into the interest actually paid over a year:

Principal × ((1 + r/n)ⁿ - 1)

Here r is the APR and n is the number of compounding periods in a year. On $100 borrowed at 10% APR compounded monthly:

$100 × ((1 + 10%/12)¹² - 1) = $10.47

So the borrower pays $10.47 in interest over the year. A $100 savings account paying 10.47% APY earns that same $10.47. A 10% APR and a 10.47% APY are the same thing under two labels. The Compound Interest Calculator converts between them at any compounding frequency.

How this calculator finds your APR

The tool solves for the rate that makes the present value of your payment stream equal the cash you actually receive. Upfront fees are subtracted from the proceeds while the payment stays sized to the full balance, so the solved rate comes out above the note rate. Loaned fees work the other way: they are added to the balance, which lifts the payment and the APR together. Compounding frequency and payment frequency are treated separately, so a loan that compounds daily and pays monthly is priced correctly rather than approximated.

The mortgage version applies the same method, with points priced as a percentage of the loan amount and any PMI added to the monthly payment. To size the payment itself in more detail, use the Loan Calculator or the Payment Calculator. For the interest side on its own, without fees in the picture, the Interest Calculator covers it.

How accurate a quoted APR has to be

Regulation Z does not demand a perfect figure. For a regular transaction the disclosed APR is treated as accurate when it falls within one eighth of one percentage point of the true rate, above or below. Irregular transactions, meaning loans with uneven payments or multiple advances, get a quarter of a point. A quoted 6.50% can therefore be a real 6.61% and remain compliant, which is a good reason to compare the dollar total of the finance charge as well as the rate.

Timing is regulated too. A lender has to deliver a Loan Estimate within three business days of receiving your application, and the Closing Disclosure at least three business days before closing. Those two documents are what make comparison shopping possible, since both use the same layout and both state the APR on the same basis.

The assumption baked into every APR

APR spreads the fees across the full term, which means it assumes you keep the loan to maturity. Most borrowers do not. Selling, refinancing or paying early ends the loan while the fees have only partly been earned back, so the effective cost is higher than the APR suggested.

Points make the trade concrete. On a $300,000 loan over 30 years, taking 6.25% instead of 6.5% for one point costs $3,000 up front and saves $49.05 a month. That is a break-even of 61 months. Keep the loan five years and you gained nothing. Keep it fifteen and you are well ahead. The APR of the second loan looks better because the calculation assumes all 30 years, so it answers a question you may not be asking.

What the number leaves out

Not every closing cost is a finance charge. Charges for services you could shop for, such as title work chosen by you, along with recording fees and property taxes, generally sit outside the APR. Origination fees, discount points, mortgage insurance premiums and prepaid interest sit inside it. Two lenders can quote the same APR while charging very different amounts at the table, so read the cash-to-close line beside the rate.