APR Calculator — Compare Two Loan Offers
ℹ RefinanceUSA is not a lender. Results are estimates for comparison. Enter only lender fees (origination + points) — exclude third-party fees (appraisal, title) which are typically the same at all lenders. How we calculate
APR vs. Interest Rate: The Critical Difference
The interest rate determines your monthly payment. The APR tells you the true annual cost of the loan after factoring in lender fees. Two lenders can offer the same interest rate but have dramatically different APRs if their fees differ.
What APR Includes
- Interest rate (the largest component)
- Origination fees and loan processing fees
- Discount points paid to buy down the rate
- Mortgage broker fees (if applicable)
- Certain other finance charges required by the lender
What APR Does NOT Include
- Appraisal fees (third-party, similar at all lenders)
- Title insurance and settlement fees
- Recording fees and transfer taxes
- Prepaid interest, taxes, and insurance
- Private mortgage insurance (PMI) — though HELOC APR does include PMI
How APR Is Calculated
The APR is the effective monthly interest rate that, applied to the net loan proceeds (loan amount minus fees), produces the same payment stream as the stated rate applied to the full loan amount. It's the IRR of the loan's cash flows from the borrower's perspective.
3 APR Comparison Scenarios
Scenario 1 — Same rate, different fees: APR reveals the truth
$400K loan, 30 years — two lenders with identical rates
| Lender A: rate | 6.75%, $1,500 origination fee |
| Lender A: APR | 6.80% |
| Lender B: rate | 6.75%, $8,000 origination fee |
| Lender B: APR | 7.02% |
| Same monthly payment? | Yes — both $2,594/mo |
| Lifetime cost difference | Lender A saves $6,500 in fees paid |
| Recommendation | Lender A — identical rate, lower total cost |
When the stated rate is identical but fees differ, the APR immediately reveals which offer is better. Always request the Loan Estimate from multiple lenders and compare APR — not just the headline rate.
Scenario 2 — Lower rate with points vs. no-points loan
$350K loan — should you pay 2 points for a lower rate?
| Loan A: rate (no points) | 7.00%, $0 in points |
| Loan A: APR | 7.00% |
| Loan A: monthly payment | $2,329/mo |
| Loan B: rate (2 points) | 6.50%, $7,000 in points |
| Loan B: APR | 6.74% |
| Loan B: monthly payment | $2,212/mo |
| Monthly savings with Loan B | $117/mo |
| Break-even on points cost | 60 months (5 years) |
| Recommendation | Loan B if staying 5+ years; Loan A if shorter |
APR captures the point cost — Loan B's 6.74% APR vs. 7.00% for Loan A tells you it's a better deal over the full term. But if you sell in 3 years, Loan A (no points) saves money despite the higher APR. APR is a lifetime metric; match it to your actual hold period.
Scenario 3 — The misleading advertised rate
$450K loan — advertised rate hides high fees
| Advertised bank rate | 6.25% (front-page offer) |
| Required origination fee | $13,500 (3% of loan) |
| True APR on advertised loan | 6.68% |
| Online lender rate | 6.50% (no origination fee) |
| True APR on online lender | 6.51% |
| Better deal? | Online lender at 6.50% / 6.51% APR |
| Lifetime savings choosing online lender | $13,500+ (in fees not paid) |
The advertised 6.25% rate looks far better than 6.50% — but the high origination fee makes the APR 6.68%. The "higher" 6.50% no-fee loan has a lower APR of 6.51% and saves $13,500+ in upfront costs. This is exactly why the CFPB requires lenders to disclose APR on all loan disclosures.
Frequently Asked Questions
What is APR on a mortgage?
APR is the true annual cost of a mortgage including both the interest rate and most lender fees. A 6.75% rate with $3,500 in fees on a $350,000 loan has an APR of approximately 6.87% — higher than the stated rate because the fees are factored in as additional financing cost.
What's the difference between APR and interest rate?
The interest rate drives your monthly payment calculation. APR adds lender fees to the cost picture. Two loans with the same interest rate but different fees will have different APRs — the one with more fees has a higher APR and costs more over the loan's life.
What fees are included in APR?
APR includes lender-controlled fees: origination fee, discount points, mortgage broker fees, and required finance charges. It excludes third-party fees (appraisal, title, recording) that are roughly the same regardless of lender.
When should I use APR vs. total cost comparison?
APR is best for comparing loans you plan to hold for the full term. For shorter holds (5–7 years), compare total out-of-pocket cost over your expected tenure — a loan with lower fees but higher APR may cost less than a lower-APR loan loaded with upfront fees if you sell or refinance early.
What is a "no-cost" mortgage and how does it affect APR?
A no-cost mortgage uses lender credits — the lender covers closing costs in exchange for a higher interest rate. Because lender fees are $0 or negative, the APR equals the stated interest rate. This makes APR comparison straightforward. The higher rate means you pay more each month; the cost is in the payment, not upfront. No-cost loans make sense when you expect to refinance again within a few years, making fee recovery unlikely.
Can APR be lower than the interest rate?
Yes — when lender credits (negative points) are applied. A lender credit reduces the upfront fee load, which mathematically lowers APR below the stated rate. For example, a 7.0% rate with $3,500 in lender credits on a $350,000 loan may show an APR of 6.88%. This is valid: the negative fees reduce the effective financing cost. It also means a no-cost loan at a higher rate can sometimes have a lower APR than a low-rate loan loaded with fees, especially for short hold periods.
Do lender fees have to be disclosed before I apply?
Yes. Under TRID (TILA-RESPA Integrated Disclosure) rules, lenders must provide a Loan Estimate within 3 business days of receiving your application. The LE discloses Section A origination charges, the interest rate, and the APR. Fees on the Loan Estimate can only increase beyond tolerance limits under specific circumstances — so the LE is a binding-enough document to use for lender comparison. Request Loan Estimates from at least 3 lenders before choosing.
How to Use the APR Calculator
This tool compares two loan offers side by side using Annual Percentage Rate — the only apples-to-apples metric that accounts for both rate and fees. Follow these steps for accurate results.
Step 1 — Enter the shared loan amount
Both loans must have the same principal balance for APR to be a fair comparison. If Lender A is quoting a slightly different balance (e.g., rolling in fees differently), normalize them to the same amount before comparing.
Step 2 — Enter each lender's note rate
Use the interest rate from your Loan Estimate — not the APR listed there. Enter each lender's note rate separately. The calculator computes APR from the note rate plus the fees you enter.
Step 3 — Enter lender fees only (not third-party fees)
APR is most useful when comparing lender-controlled fees: origination, discount points, and processing charges. Do not include appraisal, title insurance, or escrow fees — those are roughly the same at every lender and would distort the comparison. Lender fees appear on Page 2, Section A of the Loan Estimate.
Step 4 — Read the verdict and lifetime cost
The calculator highlights the lower-APR loan. Also check the "Total cost (interest + fees)" row — for short hold periods, a loan with slightly higher APR but lower fees may cost less in the years you actually own the home.
When APR Comparison Has Limits
APR is a lifetime metric that assumes you hold the loan for its full term. If you plan to sell or refinance within 5–7 years, also compare the total cost over your expected hold period, not just the lifetime APR. A loan with higher fees but a lower rate has a lower APR but may cost more if you exit early. Use our break-even calculator alongside this tool for a complete picture.
ARM APR vs. Fixed APR: Why the Comparison Breaks Down
APR is a reliable comparison tool for fixed-rate loans — but it becomes misleading when you compare a fixed-rate loan's APR to an ARM's APR. This is one of the most misunderstood aspects of mortgage shopping.
Why ARM APR Is Understated
Federal Regulation Z (Truth in Lending) requires ARM APR to be calculated using only the initial rate for the entire loan term — future adjustments are legally excluded from the APR calculation. This means a 5/1 ARM at 6.0% with 2/2/5 caps shows an APR as if the rate stays at 6.0% for all 30 years, even though it will almost certainly adjust after year 5.
Result: a 5/1 ARM might display a 6.08% APR on its Loan Estimate, while a 30-year fixed at 6.75% shows 6.82% APR. The ARM appears cheaper on paper. But if the ARM adjusts to 7.5% after year 5 and you stay 15 years, the ARM's true realized APR could exceed 7.5% — well above the fixed alternative.
The Right Comparison Tool by Loan Type
| Comparison | Best Tool | Why |
|---|---|---|
| Fixed vs. Fixed (same lender) | APR | Apples-to-apples; same calculation methodology |
| Fixed vs. Fixed (different lenders) | APR | APR normalizes fee differences |
| ARM vs. ARM (same cap structure) | APR | Same regulatory basis; fees normalized |
| ARM vs. Fixed | Total cost over hold period | ARM APR excludes adjustment risk |
For ARM vs. fixed comparisons, use our ARM vs. Fixed calculator to model your specific hold period with projected and worst-case rate scenarios. Compare total cost over your expected stay, not lifetime APR.
When APR Comparison Is Reliable
Use APR to compare: two fixed-rate loans from different lenders, two ARMs with identical cap structures and terms, or a no-points vs. points version of the same fixed loan. In all these cases, APR is apples-to-apples. Avoid APR comparisons between a fixed loan and an ARM — the ARM's regulatory APR was never intended to predict its lifetime cost.
Reading Your Loan Estimate: Where to Find APR Inputs
The CFPB's standardized Loan Estimate (LE) format discloses everything you need to calculate and compare true APR across lenders. Knowing exactly where to look prevents the most common input errors in this calculator.
Page 1 — The Interest Rate Field
The note rate (interest rate) appears in the "Loan Terms" box on Page 1. This is what you enter into the calculator as "Interest Rate" for each lender. The LE also discloses APR here — but the LE's APR includes some fees differently than this calculator. Use the LE's stated rate and fees, not its pre-calculated APR, as inputs.
Page 2 — Section A: Origination Charges
Section A, "Origination Charges," lists every lender-controlled fee. This is the only section you use for this calculator's "Lender Fees" field:
- Origination fee — listed as "Loan Origination Fee," "Underwriting Fee," or "Processing Fee"
- Discount points — listed as "X% of Loan Amount (Points)" with the dollar total
- Any other lender-required finance charges in Section A
Add all Section A charges together. That sum is your "Lender Fees" input. Do not include anything from Section B (appraisal, credit report) or Section C (title services) — those are third-party costs that are roughly equal at all lenders and would distort the comparison.
Standardizing Fees for a Fair Comparison
If Lender A quotes $350,000 and Lender B quotes $348,500 (rolling some fees into the balance), normalize both to the same loan amount before comparing. Different principal amounts produce different APRs for reasons unrelated to lender pricing. Request quotes for the identical loan amount from all lenders on the same day — rates move daily, so different-day quotes cannot be fairly compared.
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Get the Full Picture on Your Refinance
The RefinanceUSA calculator lets you enter complete loan offers — rate, fees, term, and closing costs — and compare them side by side across monthly savings, break-even, and lifetime cost.
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