APR Calculator
Convert loan terms, payment, and fees into a true Annual Percentage Rate
Last updated: November 2025 · APR disclosure required by TILA Regulation Z
Loan Details
5.00 years
Computed monthly payment: $500.95
Origination, points, broker fees, lender mortgage insurance
APR assumes you hold the loan to maturity
If you refinance or sell early, you amortize those fees over fewer months and the true effective rate is higher than the stated APR. On a 30-year loan with $3,000 in fees, holding for only 5 years makes the effective rate about 0.4% above the stated APR.
Cost of Credit Breakdown
Understanding APR
What APR Measures
APR (Annual Percentage Rate) is the all-in cost of credit expressed as a single annualized rate. It includes the note rate plus prepaid finance charges such as origination fees, discount points, and lender-required mortgage insurance. APR was created by the federal Truth in Lending Act in 1968 to make competing loan offers comparable, before APR disclosure, lenders could quote low rates while burying fees in the closing statement. On a typical 30-year mortgage with 1 point and $1,500 in lender fees, APR runs about 0.15 percent above the note rate. On short-term or fee-heavy loans, the gap can be much wider.
How APR Is Calculated
APR is the discount rate that equates the present value of all monthly payments to the net loan proceeds (loan amount minus upfront fees). Mathematically: net proceeds = payment * [1 - (1 + APR/12)^-n] / (APR/12). Because this equation has no closed-form solution, calculators (including this one) solve it iteratively, typically via bisection or Newton\'s method. The result is a precise annualized rate that captures the true economic cost of the loan.
The Hold-To-Maturity Assumption
APR assumes you keep the loan for the full term. On a 30-year mortgage that means amortizing fees over 360 months, which keeps the APR close to the note rate. The reality is that the average homeowner sells or refinances within 7 to 10 years. If you pay $3,000 in fees but only hold the loan for 5 years, you have effectively financed those fees over 60 months instead of 360, and the true cost is much higher than the stated APR. For accurate comparisons, always compute an effective APR over your expected holding period.
What APR Does Not Include
APR captures lender-imposed finance charges but excludes third-party costs you would pay regardless of which lender you choose: title insurance, recording fees, attorney fees, appraisal, credit report fee, escrow deposits, and homeowner\'s insurance. APR also does not reflect prepayment penalties, balloon payments, or rate-reset risk on adjustable-rate loans. For mortgages, the Loan Estimate and Closing Disclosure required under TRID give a fuller picture, including total settlement costs in dollars rather than just the APR.
Frequently Asked Questions
What is the difference between APR, interest rate, and APY?
The interest rate (also called the note rate) is the cost of borrowing the principal expressed as an annual percentage. APR (Annual Percentage Rate) includes the interest rate plus most prepaid finance charges such as origination fees and points, expressed as a single annualized rate. APY (Annual Percentage Yield) is used on savings or investments and reflects the effect of compounding within the year. For borrowers, APR is always the best apples-to-apples comparison number.
Why is APR higher than the note rate?
APR includes upfront fees (origination, points, processing) that the note rate does not. Because those fees are essentially extra interest you pay at closing, spreading them across the loan term raises the effective annual cost above the stated rate. On a 30-year mortgage with 1 point and $1,500 in fees, APR is typically 0.10 to 0.20 percentage points higher than the note rate. On a short-term personal loan with significant fees, the gap can be 1 to 3 percentage points.
When does APR understate the true cost of a loan?
APR assumes you hold the loan for the full term. On a 30-year mortgage, that means amortizing fees over 360 months. If you sell or refinance after 5 years, you have actually paid those same fees over just 60 months, so the effective annualized cost is much higher than the stated APR. Always compute your own "effective APR over the period I will actually hold the loan" when comparing offers, especially if you expect to move or refinance.
What law requires APR disclosure?
The federal Truth in Lending Act (TILA), implemented by Regulation Z, requires lenders to disclose APR before you sign for any consumer credit, including mortgages, auto loans, personal loans, and credit cards. The goal is to make competing offers comparable. For closed-end loans, the lender must provide a Truth-in-Lending Disclosure (or, for mortgages, the Loan Estimate and Closing Disclosure) showing APR alongside the note rate.
Which fees are included in APR versus excluded?
Included in APR: origination fees, discount points, mortgage broker fees, lender-required mortgage insurance premiums, and any other lender-imposed charges that are a condition of credit. Excluded from APR: third-party fees you would pay regardless of lender choice (title search, recording fees, attorney fees, appraisal, credit report fee, and homeowner's insurance). The exact list is set by Regulation Z and varies slightly by loan type.
How do discount points affect APR?
A discount point equals 1 percent of the loan amount paid upfront in exchange for a lower note rate (typically 0.125 to 0.25 percent off the rate per point). Because points are an upfront finance charge, they raise the APR. The break-even on points is the month at which the cumulative monthly savings from the lower rate equals the upfront cost of the points. If you sell or refinance before break-even, the points were a net cost; after break-even, they save money.