1. What is Mortgage APR?

The Annual Percentage Rate (APR) represents the true cost of borrowing by including the interest rate plus points and other loan fees. It provides a more comprehensive view of loan costs than the interest rate alone.

2. How Does the Calculator Work?

The calculator uses the following approach:

Where:

• \( Rate \) — Nominal interest rate (%)
• \( Points \) — Points paid (% of loan amount)
• \( Fees \) — Other loan fees (USD)

Explanation: The calculator determines the effective interest rate when points and fees are considered as part of the loan cost.

3. Importance of APR Calculation

Details: Comparing APRs between lenders provides a better basis for loan comparison than just comparing interest rates, as it accounts for all loan costs.

4. Using the Calculator

Tips: Enter the nominal interest rate, points percentage, loan fees, loan amount, and term. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing the principal, while APR includes the interest rate plus points and other loan fees.

Q2: How do points affect APR?
A: Points (prepaid interest) increase the APR because they represent additional loan costs paid upfront.

Q3: Why is APR higher than the interest rate?
A: APR includes all loan costs, so when points or fees are present, APR will be higher than the nominal interest rate.

Q4: When is APR most useful?
A: APR is most valuable when comparing loans with different combinations of interest rates, points, and fees.

Q5: Does APR account for all loan costs?
A: APR includes most lender-imposed costs but may exclude some third-party fees like appraisal or title insurance.