Real Annual Percentage Rate Calculator
Unsure if your loan is a good deal? Want to know the full cost? To discover the real APR of your loan, enter your loan amount, interest rate, points, additional costs, and year-length term below. Compare your loan against the best local offers using the current mortgage rates listed beneath the calculator.
Current Mortgage Rates on $260,000 Home Loans
The following table highlights locally available current mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
The Lowdown On Mortgage APR
-And why it's so important to homeowners
You've probably heard the term APR if you've been shopping for a home, and you may even know what the acronym stands for: Annual Percentage Rate.
But do you really understand the concept, and how it differs from the interest rate on your mortgage?
The APR is a complex mathematical equation designed to make life easier for borrowers, and the government insists that lenders make the information available, literally in the same breath as the interest rate.
When you apply for a mortgage, the lender must make you aware of both figures — the attractive interest rate, and the more realistic APR. The law even goes so far as to forbid the lender from emphasizing one rate over the other.
It's up to you to listen closely to both numbers in order to fully understand the debt obligation you're about to take on. The APR is a simple way of comparing different deals offered by different lending institutions, or even different options from the same lender.
What Exactly Is the APR?
The cliché is that comparing different offers from different lenders is often like trying to compare apples and oranges; you need a separate yardstick for each. The APR is like a pair of magical glasses through which all lenders and financing deals are seen on an equal field.
If you picture all your prospective lenders lined up in a row, they will all have shiny offers to tempt you. Some will have lower rates, but add points; some will offer no points and low interest, but higher fees; still others will try and dazzle you with bait-and-switch tactics, misleading claims and pie-in-the-sky promises.
Your federally-approved APR glasses allow you to see through the glare, the bling and the bells and whistles, so you can see what these offers really mean to your pocketbook and your future. Now you can easily compare offers from several lenders side-by-side, even if they appear to be different animals (or types of fruit).
How Is APR Calculated?
As you might imagine, the calculation is complex, involving mysterious algorithms and factors you could never imagine. The APR takes into account origination fees, mortgage insurance and the points you incur.
More importantly, it lets you see your money's real buying power and answers the question on every home buyer's mind: Is it worth it to pay more up front in exchange for a lower rate?
Let's find out how two different mortgage offers measure up, courtesy of the above tool, for the same 30-year $300,000 note.
The first lender is Mr. Goodbank, with a 6.5% offer with no upfront points, and $5,000 in fees. Each point is equal to 1% of the principal.
Lender B is Mr. Betterbank, offering 6.25% but asking for one point as part of the deal, with $5,700 in additional fees. By entering these numbers, we see the following side-by-side comparison.
Mr. Betterbank's 6.25 interest rate, often called the nominal rate, coupled with one point and $5,700 in fees turns out to be the better deal with a monthly cost of $1,900 (compared to $1,927 in the higher-interest Offer A).
The lower APR of 6.55% indicates that Offer B is the better deal.
APR Vs. Interest Rate
The interest rate is the cost of borrowing money, whereas the APR is what your debt actually costs on a yearly basis, with all the interest, closing costs, points and origination fees figured in. It does not include application fees, late payment penalties or fees for property appraisals and document preparation.
What's the difference between interest rates and APRs? An APR is intended to give you more information and a clearer picture of what you're getting into, to make shopping for financing more comparable.
Looking back at our Offer A and B comparison above, the latter offer has a lower APR and lower payments — but wait there's more.
Time is always the fourth dimension and an important variable when figuring payments and amortization schedules. Also, time is money.
While Offer B seems like the sweetest deal, what if you don't have the extra $700 cash that it requires, or the upfront money to cover the points? What if you only plan to live in the house for a short time, and won't have enough time to make back the upfront costs?
As a rule of thumb, the APR is a good barometer of your financial future if you plan to keep your house for the entire 30-year term.
Limitations on Annual Percentage Rates
APR limitations are regulations set forth by the federal government to protect the consumer against exorbitantly high rates and the unscrupulous lenders who try to fleece borrowers or get them into amortization schedules they can barely keep up with.
Both the APR and the surrounding limitations are valuable tools geared to protecting the consumer, and making the confusing world of finance a little easier to understand.
Upfront Loan Fees
Homes are the biggest financial purchase most consumers make. However not all quotes are created equal. Below we'll cover some of the common differences across loans & lenders.
Many banks have similar cost of capital, thus leading to similar loan quotes for a particular borrower of a given risk profile for a particular type of loan.
Some banks advertise lower interest rates, but in many cases lend at those lower rates by charging an upfront fee for the privilege. This upfront fee is called mortgage points.
How Much Do Mortgage Points Cost?
Each discount point costs 1% of the loan's principal, so if you borrowed $300,000 then buying 2 mortgage points would cost $6,000. Each point reduces the effective interest rate on the loan by a quarter of a percent.
Who Should Consider Buying Discount Points?
As these fees are paid upfront, they make sense for people who are certain they will live in the home for an extended period of time. Buying a lower interest rate for 30 years and then selling the home after 2 years means you eat the points costs upfront, but likely do not live in the house long enough for the cost of the points to be recouped by lower monthly payments.
Comparing Home Loan Options
Here is an example of how points operate on a hypothetical 30-year $300,000 home loan.
|No Points||1 Point||2 Points|
|Monthly P&I Payment||$1,703.37||$1,656.61||$1,610.46|
|Monthly Payment Savings||N/A||$46.76||$86.91|
|Months to Recover Point Cost||N/A||64||69|
|Savings Over 30 Years||N/A||$13,833.60||$25,287.60|
One can see how homeowners can save $10,000 or $20,000 over the course of a 30-year loan by buying points, provided they live in the home throughout the duration of the loan. If they sell the home before the loan term expires then they won't save as much by buying points. And if they sell the house in only a couple years they may end up losing a few thousand dollars buying points.
Are Points Tax Deductible?
For income tax purposes discount points are considered upfront interest payments, so they are tax deductible in the year the loan is originated.
Property Mortgage Insurance
If you are paying less than 20% down on a conventional home loan, you usually require Property Mortgage Insurance (PMI) payments until the loan balance falls below 80% of the home's value. If your down-payment is close to 20% but will fall below 20% by buying points, you are usually better off putting at least 20% down on the house to bypass the PMI requirement. If you are required to pay PMI off the start, many enders typically remove the monthly PMI payments only after the loan's principal balance falls below 78% of the home's value. This would be referred to a 78% LTV or 78% loan to value. FHA, VA & USDA loans have different forms of lender insurance embedded in them & different fees for the insurance to protect the lender against the risk of default.
The monthly cost of PMI can be significant. For example, in the above hypothetical $300,000 loan if the PMI rate was 0.5% per year it would equate to a $125 monthly fee until the LTV fell to 78%.
Other Related Tips
- Each point typically costs 1% of the loan and shifts the loan's interest rate by a quarter of a percent, though some lenders may define or charge for points slightly differently.
- Points on ARM loans typically only lower the introductory rate of interest charged during the initial teaser period. The loan will float at a margin against the referenced index rate throughout the remainder of the loan.
Loan Origination Fees
Unlike mortgage points, other upfront loan origination fees are NOT tax deductible.
Origination fees are charged by lenders for originating a home loan. They typically range between 0.5% and 1% of the loan amount across the United States. This typically works out to somewhere between $750 to $1,200.
Before the 2008 crisis some predatory subprime lenders charged origination fees exceeding 4% of the loan. In the wake of the crisis new regulations were passed to limit such excessive fees.
Some lenders may advertise loans with a 0% origination fee. When they do not charge a direct loan origination fee it means the fee has been shifted from a transparent upfront charge to being moved into the rate of interest charged on the loan.
One can almost think of a loan with no origination fee as being a loan with something similar to half of negative point baked into the rate of interest charged to the borrower. So if they tell you it has no origination fee and charge a rate of 5.75% on the loan then the equivalent loan with an upfront origination fee might charge a 5.5% APR.
Other Common Fees
Most real estate transactions have appraisal, title & recording fees in addition to the above listed expenses.
Some countries also charge stamp duty fees, while certain regions may apply specific fees to foreign investors to discourage real estate bubbles driven by hot money.
These fees along with things like property taxes or HOA fees are typically not considered when determining the real APR of a loan, since they are external fees which would be required even if the house was paid for using cash savings.