How to use this calculator
- Loan amount and loan term.
- Interest rate (note rate): the rate on the promissory note that sets your payment.
- Points: discount and origination points as a percentage of the loan. One point is 1%.
- Other prepaid finance charges: lender fees you pay at closing, such as underwriting, processing or application fees. Leave out third-party charges like appraisal, title insurance and credit report fees; Regulation Z excludes those from the finance charge.
- Compare a second offer to enter offer B’s rate, points and fees for the same loan amount and term.
The results show the APR, the three Truth in Lending figures (amount financed, finance charge and total of payments) and a table of what each loan effectively costs if you pay it off after 3, 5, 7, 10 or 15 years.
How APR is calculated
Under the Truth in Lending Act, the finance charge is the dollar cost of credit: interest plus charges you pay as a condition of getting the loan, such as points, loan fees and mortgage insurance (12 CFR 1026.4). Charges paid at closing reduce the amount financed:
The APR is the annual rate that discounts your scheduled payments back to exactly the amount financed. With monthly payments, that’s 12 times the monthly rate i that solves:
Pk is each payment, including a final payment adjusted for rounding. This is the actuarial method in Appendix J to Regulation Z. There’s no closed-form answer, so the calculator solves for i numerically, to far more precision than the 1/8-point tolerance lenders are allowed.
Worked example
You’re comparing two offers on a $400,000, 30-year fixed mortgage:
| Offer A | Offer B | |
|---|---|---|
| Note rate | 6.375% | 6.75% |
| Points | 1 ($4,000) | 0 |
| Other lender fees | $1,500 | $1,200 |
| Monthly payment | $2,495.48 | $2,594.39 |
| Amount financed | $394,500 | $398,800 |
| Finance charge | $503,872 | $535,183 |
| APR | 6.508% | 6.779% |
Offer A charges $4,300 more at closing but has a lower rate. Over the full 30 years its APR is 0.27 percentage points lower and its finance charge is $31,311 smaller.
When the lower APR isn’t the better deal
APR assumes you keep the loan for its full term. If you sell or refinance early, the upfront charges are spread over fewer payments, so a loan with points costs more per year than its APR suggests. Here’s the effective APR of the two offers above if the loan is paid off early:
| Paid off after | Offer A | Offer B |
|---|---|---|
| 1 year | 7.816% | 7.063% |
| 2 years | 7.123% | 6.913% |
| 3 years | 6.892% | 6.863% |
| 4 years | 6.777% | 6.838% |
| 5 years | 6.709% | 6.823% |
| 10 years | 6.575% | 6.794% |
| 30 years (full term) | 6.508% | 6.779% |
Offer B is cheaper if you keep the loan for three years or less; from year four on, offer A wins. If you might move or refinance soon, paying points rarely makes sense. The refinance calculator and closing cost calculator can help you weigh those plans.
How points and fees move the APR
On a $300,000 loan at 6.5%:
| Prepaid finance charges | 30-year APR | 15-year APR |
|---|---|---|
| None | 6.500% | 6.500% |
| 1% of the loan ($3,000) | 6.597% | 6.660% |
| 2% of the loan ($6,000) | 6.695% | 6.822% |
| 3% of the loan ($9,000) | 6.795% | 6.986% |
It doesn’t matter whether the charge is called a point or a fee; $3,000 either way raises the APR by the same amount. The same charge raises a shorter loan’s APR more, because it’s spread over fewer payments.
Interpreting your result
- Compare APRs only for the same term and loan type. A 15-year and a 30-year loan, or a fixed and an adjustable loan, have APRs that aren’t directly comparable. For adjustable loans, the APR doesn’t reflect the maximum rate.
- Look at your disclosures. The Comparisons section on page 3 of the Loan Estimate shows the APR and total interest percentage; the Closing Disclosure adds the finance charge and amount financed. The mortgage calculator and amortization calculator show the full payment schedule.
- For personal loans, the same math applies to an origination fee taken out of your loan proceeds; see the personal loan calculator or the loan calculator.
Assumptions and limitations
- Fixed-rate, fully amortizing loan with level monthly payments and all prepaid finance charges paid at closing.
- Monthly mortgage insurance, which is part of a mortgage’s finance charge, isn’t included. With PMI or FHA MIP, your lender’s disclosed APR will be higher.
- Payments are rounded to the cent with a final adjusting payment, the way lenders build the disclosed payment schedule.
Sources
- 12 CFR 1026.4, Finance charge (CFPB)
- 12 CFR 1026.22, Determination of annual percentage rate (CFPB)
- Appendix J to Part 1026, Annual percentage rate computations (CFPB)
- CFPB: What is the difference between a mortgage interest rate and an APR?
This calculator is for comparing offers. The APR on your Loan Estimate and Closing Disclosure is the official figure for your loan.
Frequently asked questions
What's the difference between the interest rate and the APR?
The interest rate sets your monthly payment. The APR also counts points, lender fees and other finance charges you pay to get the loan, expressed as a yearly rate. That's why the APR is usually higher than the rate, and why it's the better number for comparing offers.
How is APR calculated?
Start with the amount financed, which is the loan amount minus prepaid finance charges such as points and lender fees. The APR is the yearly rate that makes the present value of all your payments equal to that amount financed. Regulation Z's Appendix J calls this the actuarial method; with monthly payments, the APR is 12 times the monthly rate.
What fees are included in a mortgage APR?
Points, origination and underwriting fees, mortgage broker fees, prepaid interest and mortgage insurance premiums are finance charges, so they count. Bona fide and reasonable fees for title insurance and examination, appraisals, credit reports, document preparation, notary services and escrow deposits are excluded under Regulation Z.
How much does one point raise the APR?
On a 30-year loan at 6.5%, one point (1% of the loan) raises the APR to about 6.597%, roughly a tenth of a percentage point. On a 15-year loan the same point raises it to about 6.660%, because the cost is spread over fewer years.
Is the lowest APR always the best loan?
Only if you keep the loan for its full term. APR assumes you never pay off early, so a loan with high points looks better on APR than it is if you sell or refinance within a few years. Check the early-payoff table to see which offer wins over the time you expect to keep the loan.
How accurate does a lender's APR have to be?
For a regular loan with even payments, Regulation Z treats a disclosed APR as accurate if it's within 1/8 of a percentage point of the true figure (1/4 point for irregular loans). This calculator reports three decimals so you can compare closely.
Updated November 2026. Results are estimates for educational purposes and depend on the inputs you provide.