APR Calculator
A 6.25% rate with $8,000 in fees is not a 6.25% loan. This calculator finds the true Annual Percentage Rate — the number that lets you compare mortgage and loan offers honestly, apples to apples, before you commit.
Find the true APR
Rate vs. APR — the one distinction that can cost or save thousands
The interest rate determines your monthly payment. The APR — Annual Percentage Rate — measures the total cost of the loan, including the rate plus origination fees, discount points, and other mandatory lender charges, expressed as an annual rate. Federal law (the Truth in Lending Act, or TILA) requires lenders to disclose APR within 3 days of your mortgage application specifically because the rate alone is misleading.
Here is why it matters. Lender A offers 6.00% with $10,000 in fees. Lender B offers 6.50% with $1,000 in fees. On a $400,000 30-year loan, Lender A's payment is lower — but the APR on Lender A's loan is about 6.28%, while Lender B's APR is about 6.54%. Lender A wins if you keep the loan long enough for the lower rate to outweigh the upfront fee difference. Lender B wins if you sell or refinance in the first few years. APR assumes you keep the loan for the full term — that assumption matters.
How the APR is actually calculated
The math is iterative. You effectively receive the loan amount minus the fees, but make payments based on the full loan amount. The APR is the interest rate at which the present value of your payment stream equals the net proceeds you actually received:
On a $300,000 loan at 6.25% for 30 years with $6,000 in fees: the stated payment is $1,847/month based on the full $300,000. But you effectively received only $294,000 after fees. The APR is the rate that makes $1,847/month for 360 months equal $294,000 in present value — roughly 6.43%. The $6,000 in fees added 0.18 percentage points to your true annual cost.
Comparing two mortgage offers with this calculator
When shopping mortgages, the correct process: enter each offer's loan amount, rate, and total lender fees separately, then compare APRs. The lower APR wins — for the same loan amount and term. The one caveat is how long you will actually keep the loan.
Two lenders competing for your $400,000 mortgage (30 years):
Lender A: 6.125% rate, $12,000 in fees. APR: approximately 6.50%. Monthly payment: $2,430.
Lender B: 6.375% rate, $2,500 in fees. APR: approximately 6.44%. Monthly payment: $2,495.
Lender B has the lower APR. But if you plan to sell in 5 years: Lender A's lower payment saves you $65/month × 60 months = $3,900 in payments, while you paid $9,500 more upfront in fees. After 5 years, Lender A has cost you $5,600 more. Lender B wins for the short-hold borrower. APR's blind spot: it assumes the full term.
Should you pay discount points?
A discount point is 1% of the loan amount paid upfront to reduce the interest rate — typically by 0.25% per point. Whether paying points makes sense depends entirely on your break-even calculation:
Example: $400,000 loan. One point = $4,000. Rate reduction: 0.25%. Monthly payment savings: about $58/month. Break-even: 4,000 ÷ 58 = 69 months (about 5.75 years). Keep the loan past 69 months and you come out ahead. Sell or refinance before that and you paid $4,000 for nothing. In a declining-rate environment where many borrowers refinance within 3–5 years, paying significant points is often a losing bet.
Frequently asked questions
What is the difference between rate and APR?
Rate determines your monthly payment on the principal. APR includes the rate plus mandatory fees spread over the loan term — it is the true annual cost of borrowing. Federal law requires disclosure of APR so borrowers can compare offers that have different rate and fee combinations. Always compare APR to APR for the same loan type and term.
What fees are included in APR?
Origination fees, discount points, underwriting fees, processing fees, and certain lender-required charges. Not included: appraisal, title insurance, attorney fees, prepaid taxes and insurance, or recording fees. The precise definition varies slightly by loan type under TILA regulations.
Should I pay points for a lower rate?
Calculate your break-even: point cost divided by monthly savings equals months to recoup. If you keep the loan longer than break-even, pay the points. If you will sell or refinance before then, do not. Most break-evens land between 4–8 years, which is how long you realistically expect to stay in the home.
Is a no-closing-cost mortgage really free?
No. Lenders recover closing costs through a higher rate, increasing your monthly payment and total interest paid. For short-term homeowners under 3–5 years, no-closing-cost loans often make financial sense. For long-term owners, paying closing costs usually costs less in total interest.
Why is APR on a credit card the same as the rate?
Card APR has no upfront financed fees to spread across payments, so rate and APR coincide. However, credit card interest compounds on your daily balance — a different and more expensive structure than installment APR, which is why carrying a credit card balance costs far more than a comparable-rate personal loan.
What APR actually measures
APR (Annual Percentage Rate) is the true annual cost of borrowing, incorporating not just the interest rate but also fees — origination charges, points, mortgage insurance — expressed as a single standardized annual rate. The Truth in Lending Act (TILA) requires lenders to disclose APR on consumer loans, enabling apples-to-apples comparison across different loan products with different fee structures.
APR is calculated as the interest rate that equates the present value of all payments to the loan amount net of fees — technically an Internal Rate of Return (IRR) calculation, which is why APR calculators use iterative solving rather than a simple formula.
APR vs. interest rate — a concrete Las Vegas mortgage example
Two lenders on a $400,000 Las Vegas home purchase:
- Lender A: 6.50% interest rate, 0.5 points ($2,000), $1,500 origination, $800 underwriting → APR: 6.73%
- Lender B: 6.75% interest rate, 0 points, $500 origination → APR: 6.80%
- Lender A has a lower rate AND lower APR — the fees are justified by the rate savings over the loan term
- But if you plan to sell or refinance in 4 years: calculate break-even first. $4,300 extra fees ÷ monthly savings = break-even months. If you sell before that, Lender A costs more total.
APR by loan type — what to expect in 2026
- 30-year fixed mortgage: Rate 6.5–7.0%, APR typically 6.65–7.20% (fees spread across term)
- Auto loan (new, excellent credit): APR 5.5–8.0% — few fees so rate and APR are close
- Personal loan (excellent credit): APR 8–14%; origination fees (1–8%) can make APR significantly higher than stated rate
- Credit card: APR 20–28% — the APR directly reflects the annual cost, no compounding confusion
- Payday loans: APR 300–700%+ — short term magnifies the fee-to-principal ratio astronomically
Frequently asked questions
Why is my mortgage APR higher than the interest rate?
Mortgage APR includes upfront costs spread across the loan term — origination fees, points, mortgage insurance. These raise the effective annual cost above the stated interest rate. The longer you hold the loan, the closer APR and rate converge, because fixed upfront costs amortize over more payments. Refinancing or selling early means those costs hit in a shorter window, making effective APR higher than shown.
Should I compare loans by APR or monthly payment?
APR is right for comparing identical loan terms. Monthly payment is misleading across different terms — a 72-month loan always has a lower payment than 60 months at the same rate, but costs more total. Compare APR for same-term loans and total interest paid across all scenarios. Never choose a loan based solely on monthly payment.
Does APR include all loan costs?
No — APR excludes title insurance, appraisal fees, credit report fees, escrow deposits, and some third-party fees. On a mortgage, APR is a close-but-not-complete picture of total closing costs. Always review the full Loan Estimate for mortgages or Truth in Lending disclosure for the complete fee picture before committing.
Is a lower APR always better?
Almost always, but not always. If a lower APR requires higher upfront points and fees, you need to hold the loan long enough to recoup those costs through the lower rate. Calculate the break-even: additional upfront cost ÷ monthly savings from lower rate = break-even months. If you plan to sell or refinance before break-even, the higher-fee lower-APR loan costs more total.
Disclaimer: APR calculations are estimates based on inputs provided. Actual APR depends on lender-specific fee structures and applicable disclosures. This does not constitute financial or lending advice. Stanley King (NV BS.0143719) is not a licensed financial advisor.