This **APR calculator** estimates the annual percentage rate on mortgage loans by considering extra costs/fees and specific compounding and payment frequencies. There is in depth information on how to figure out the effective rate you will pay below the form.

## How does this APR calculator work?

This financial tool helps you deal with all the calculations related to a mortgage loan by finding the annual percentage rate you are about to pay effectively plus the regular payment value. It takes into account the variables detailed in the next rows that should be given:

- Loan amount borrowed which is the money you take from your lender, bank or any other similar financial institution. Please note that in case of a mortgage this is the amount you borrow, as difference between the property price and the down payment cash you deposit at the beginning.
- Extra costs or fees which is the total you will have to pay when taking the loan. Usually here users are invited to specify any costs that should be covered, or the so called closing cost such as:

- discount points which are extra money (expressed usually as a percent of the loan amount. For instance 1.5 points is equal to 1.5% of the loan amount) you can pay to the lender when signing the agreement in order to lower the interest rate. The more discount points you pay the better is, as the interest rate will be smaller than usual. In general as can be seen in everyday practice and in lender’s offers, for each discount point you decide to pay for a 30-year loan, your interest rate is diminished by about 0.125 of a percentage point.

- origination points alsocalledloan origination feeis a charge the lender asks for preparing, assessing and submitting a mortgage loan.

- application fee is charged by the lender in order to cover all the costs associated with the processing your loan’s information and it is paid at the very beginning when you apply. Please note that this fee is not refunded in case your application for a loan is not accepted.

- appraisal fee usually depends on the home price and covers the costs associated with the appraisal of the property you intent to buy. Please note that the assessment should be independent from you and your lender. In general the main factors that are taken into account when estimating the home’s market value are: location of the home (near to transport stations, near to city centre); improvements and its condition; similar property prices in the area. Based on this figure the financial institution in case decides whether to approve the mortgage and by case how much you can actually borrow.

- title search which is paid in order to get an investigation of the historical records concerning a home and it refers to court records and decisions related to the property, its name indexes, deeds and many relevant papers. This research is performed in order to ensure the buyer that the property in question is bought from the legal owner and there are no claims, fraud or complications.

- attorney fees (either for your attorney or for lender’s attorney).

- title insurance is paid in order to protect the buyer from any unpaid mortgages secured with the property, tax liens, or any other payments the buyer could be forced to pay because the history of title on the property. This insurance will ensure you will have a legal defense and it will cover all the court costs in case a claim is made on the purchased home.

- survey fee depends on the property size and the state it is located. It is paid in order to check the official boundaries of the property and that your lot has not been intruded on by any party.

- report fee which is a cost that covers the information about your credit history the lender will ask for, from national credit entities such as Experian, Equifax, Experian and TransUnion.

- inspection fees that cover the cost of a home inspection (for pest, good conditions) made by a licensed firm.

- any other similar costs or charges imposed by the lender to the buyer when signing the contract.

- Annual interest rate.
- Interest compounding frequency that can beeither daily, weekly, bi-weekly, monthly, bi-monthly, quarterly, semi-annually, annually.
- Loan term expressed by case either in years or months.
- Desired payment frequency that can be set up either monthly or any other from daily to annually depending on the need and on the loan type.

As it can easily be observed it is a very flexible solution to perform this type of calculations as the user may choose a customized compound interest type, loan term and frequency of payment.

The algorithm behind this *APR calculator* performs these steps while providing the results explained below:

- Regular payment value (with the specified frequency) calculated by using the standard loan formula.
- Total paid for the loan obtained by multiplying the regular payment with the total payments made.
- Total interest paid figure estimated by subtracting the loan amount taken from the total paid value.
- APR percentage with is estimated by an iterative method using Newton-Raphson method.

## Example of a result

In case of a $250,000 mortgage taken over 30 years (360 months), at an interest rate of 3.95% compounded monthly, with closing costs of $7,400 and paid off on a monthly basis, the following figures will result:

■ Annual Percentage Rate (APR): 4.1795%

■ Monthly payment (principal + interest): $1,219.56

■ Total paid (principal + interest): $439,041.85

■ Total interest paid: $189,041.85

■ Total number of payments: 360

## What is APR?

The acronym for annual percentage rate, this is the actual annual interest percent that is charged for a loan, representing the effective yearly cost of the money borrowed including the closing costs or any similar the borrower has to pay. In this respect please note that the annual interest rate from financial institution’s offers is a nominal value and does not includes any other costs that should be paid by the debtor.

This indicator is more relevant than the nominal interest rate as it includes all the financing charges, fees and costs involved in the agreement. It is considered a useful indicator since it allows you to analyze different mortgage plans by comparable annualized interest rate.

## What to consider when comparing two or more loans...

- How frequent is the interest compound ...
- Which are the total closing costs you should pay ...
- What repayment plan you can take ...
- Are there any hidden costs ...

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