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APR Calculator — True Cost of Your Mortgage

Calculate your Annual Percentage Rate including all applicable fees. See the real difference between your note rate and APR.

True APR
Rate vs. APR
TILA Compliant

Calculate Your APR

Enter your loan details and select the fees included in your mortgage to see your true APR.

Origination Fee

TILA

Lender fee for processing your loan

Discount Points

TILA

Prepaid interest to lower your rate

Upfront Mortgage Insurance

TILA

FHA MIP upfront premium (1.75%)

Prepaid Interest (per diem)

TILA

Interest from closing to first payment

Mortgage Broker Fee

TILA

Fee paid to mortgage broker

Total Fees in APR$4,250

APR vs. Interest Rate

Note Rate

6.750%

Determines your monthly payment

True APR

6.870%

Includes all fees

APR is 0.120% higher than note rate — low fee load

$2270

Monthly P&I

$4,250

Total Fees

$467,234

Total Interest

APR vs. Interest Rate — What's the Difference?

%

Interest Rate (6.750%)

The "note rate" that determines your monthly P&I payment of $2270. Does not include any fees or charges.

A

APR (6.870%)

The "true cost" rate that includes $4,250 in fees spread over 30 years. TILA requires this disclosure for comparison shopping.

What's Included in APR? (TILA Requirements)

Under the Truth in Lending Act (Regulation Z), certain fees must be included in the APR calculation while others are excluded.

Included in APR

Origination fees / underwriting fees
Discount points (prepaid interest)
Mortgage broker fees
Private mortgage insurance (PMI)
FHA MIP (upfront + annual)
Prepaid interest / per-diem interest

NOT Included in APR

Appraisal Fee
$400-$600
Title Insurance
$500-$2,000
Credit Report Fee
$30-$50
Recording Fees
$50-$250
Attorney Fees
$500-$1,500
Home Inspection
$300-$500

Why APR Matters When Shopping for a Mortgage

The Annual Percentage Rate is the single most important number for comparing mortgage offers from different lenders. While the interest rate tells you what your monthly payment will be, APR reveals the true cost of borrowing by including the fees you pay upfront.

The Shopping Tool

Congress created the APR disclosure requirement under the Truth in Lending Act (TILA) of 1968 specifically to help consumers compare loan offers. Before TILA, lenders could advertise low interest rates while charging high fees, making it nearly impossible for borrowers to determine the true cost. APR solves this by combining rate and fees into a single number. When two lenders offer the same loan term, the one with the lower APR is generally cheaper. Lender A might offer 6.5% with $5,000 in fees, while Lender B offers 6.75% with $1,000 in fees — only APR reveals which is truly cheaper over the loan's life.

APR Limitations

While APR is a powerful comparison tool, it has limitations borrowers should understand. APR assumes you keep the loan for the entire term. If you plan to sell or refinance within 5-7 years, a loan with lower upfront fees but a slightly higher rate might save you more than one with a lower APR achieved through expensive points. APR also does not include all closing costs — title insurance, appraisal, and recording fees are excluded. And for adjustable-rate mortgages, APR is based on the initial rate and assumed future adjustments, making it less reliable as a comparison tool. Always look beyond APR to your specific time horizon and plans.

APR on the MLO Exam

APR is a heavily tested topic on the NMLS SAFE exam. You need to understand how APR is calculated, which fees are included (Regulation Z defines this), the TILA tolerance rules (1/8% for regular transactions, 1/4% for irregular), when APR must be disclosed (within 3 business days on the Loan Estimate), and what triggers a redisclosure. The exam may present scenarios where you must identify which loan has the lower APR or determine if a disclosed APR falls within the tolerance threshold. Understanding that APR is a consumer protection tool designed for comparison shopping — not a measure of monthly payment — is fundamental to passing this portion of the exam.

TILA

Requires APR disclosure

0.125%

Tolerance (regular)

3 days

Disclosure deadline

Frequently Asked Questions

What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal loan amount — it determines your monthly payment. APR (Annual Percentage Rate) includes the interest rate plus certain fees and charges spread over the loan term, giving you the true cost of the loan. APR is always equal to or higher than the interest rate because it accounts for fees like origination charges, discount points, and mortgage insurance premiums.
What fees are included in APR?
Under TILA (Truth in Lending Act), APR must include: origination fees, discount points, mortgage broker fees, mortgage insurance premiums (PMI/MIP), and certain prepaid finance charges. Fees NOT included in APR are: title insurance, appraisal fees, credit report fees, recording fees, and attorney fees. The exact inclusions are defined by Regulation Z.
Why is my APR higher than my interest rate?
APR is almost always higher than the note rate because it factors in loan fees and charges. The larger the gap between your APR and interest rate, the more you are paying in upfront fees. A gap of 0.1-0.2% is typical; a gap of 0.5% or more suggests significant upfront costs.
How do I use APR to compare mortgage offers?
APR is the best apples-to-apples comparison tool for mortgage offers because it accounts for both rate and fees. When comparing two loans with the same term, the one with the lower APR generally costs less overall. However, APR assumes you keep the loan for the full term — if you plan to sell or refinance early, the loan with lower upfront fees may be better even if its APR is slightly higher.
Is APR required to be disclosed on mortgage documents?
Yes, under the Truth in Lending Act (TILA) and Regulation Z, lenders must disclose the APR on both the Loan Estimate (provided within 3 business days of application) and the Closing Disclosure (provided at least 3 business days before closing). The APR must be accurate within 1/8 of 1% (0.125%) for regular transactions.

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