Step 3: Mortgage APR

Annual Percentage Rate is the equivalent interest rate considering all of the added costs to a given loan. Closing costs usually run from 2% to 3.5% of the total loan amount, but seem to fall in the range of 3%. Keep this in mind when applying for a home mortgage.

It is the function of the loan amount, the interest rate, the total added costs and the terms.

Use this calculator to determine the Annual Percentage Rate (APR) for your mortgage. Press the report button for a full amortization schedule, either by year or by month.

These numbers are taken from the illustration.

• A loan of $100,000 for 30 years at 6.25% interest gives you an actual payment of $615.72. The closing costs at the bottom of the illustration totals $2800.00 giving us an APR interest rate of 6.511%
• The lender is only giving you $100,000, but you are paying back $102,800 ( $100,000 + $2800).

To prove that the APR rate is 6.511% involves two steps:

Step 1

• Find out what the payment would be on a mortgage of $102,800
• Plug these amounts into the illustration (30 years at 6.25%)
• The payment would be $632.96 per month

Step 2

• Input the amount of $100,000 into the illustration which is the actual amount of money being received from the lender
• Plug these amounts also into the illustration (30 years at APR 6.511%)
• The payment would be $632.96 per month the same as the payment in Step 1 above only we used the APR 6.511% rate.

As stated earlier, the difference is that you are receiving only $100,000 from lender, but paying back a total of $102,800 for 30 years at an APR of 6.511% for a payment of $632.96 per month.

The APR for a loan with no fees or closing costs is always the same as the stated interest rate.