Calculate a loan's true Annual Percentage Rate (APR), which factors in upfront fees and points on top of the stated interest rate.
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The interest rate only reflects interest charged on the loan. APR spreads any upfront fees and points across the loan term too, so it reflects the loan's true annual cost. This calculator finds the payment based on your stated rate and loan amount, then solves for the rate that would produce that same payment on the smaller amount you actually receive after fees.
The larger the fees relative to the loan amount, or the shorter the loan term, the more APR will exceed the stated rate, since the same dollar amount of fees is spread over less time or a smaller loan.
APR is designed to let you compare loan offers with different fee structures on equal footing. A loan with a lower stated rate but high fees can end up with a higher APR than a loan with a slightly higher rate but low fees, always compare APR, not just the headline interest rate.
A $200,000 loan at a stated 6% rate over 360 months (30 years), with $4,000 in upfront fees: the monthly payment based on the full $200,000 at 6% works out to $1,199.10. But since you actually only receive $200,000 − $4,000 = $196,000 net of fees, and you're still paying that same $1,199.10 monthly payment, the true APR (the rate that would produce that payment on the smaller $196,000) comes out to 6.189%, meaningfully higher than the 6% stated rate.
Comparing a stated interest rate on one offer against another offer's APR, that's not apples-to-apples, always compare rate-to-rate or APR-to-APR, not one of each.
Assuming a lower stated rate is automatically the cheaper loan, as the explanation shows, high fees can push APR above a competing offer's headline rate.
Forgetting APR assumes you keep the loan for its full term, if you plan to sell or refinance early, upfront fees are spread over fewer years than APR assumes, making the true cost per year higher.
Include upfront costs required to get the loan, like origination fees, discount points, and certain closing costs. Fees that aren't required to obtain the loan (like a home inspection) typically aren't included in official APR calculations.
Official APR calculations (regulated under TILA in the US) include a precisely defined set of fees, and rounding conventions can vary slightly. This calculator gives a close estimate based on the fees you enter, but always confirm the official APR disclosure from your lender.
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