Annual Percentage Rate Loan Calculator |
||
| Home Mortgage Calculator | Mortgage Calculators | |
| The term annual percentage rate (APR), also called nominal APR, and the term effective APR, also called EAR, describe the interest rate for a whole year, rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate.
The nominal APR is the simple-interest rate for a year, the effective APR is the fee+compound interest rate calculated across a year. The nominal APR is calculated as: the rate, for a payment period, multiplied by the number of payment periods in a year. The effective APR has been called the "mathematically-true" interest rate for each year. The computation for the effective APR, as the fee+compound interest rate, can also vary depending on whether the up-front fees, such as origination or participation fees, are added to the entire amount, or treated as a short-term loan due in the first payment. Some classes of fees are deliberately not included in the calculation of APR. Because these fees are not included, some consumer advocates claim that the APR does not represent the total cost of borrowing. Excluded fees may include one-time fees which are paid to someone other than the lender, such as a real estate attorney's fee. Some people argue that the real estate attorney's fee, for example, is a pass-through cost, not a cost of the lending. In effect, they are arguing that the attorney's fee is a separate transaction and not a part of the loan. Regulators have been unable to completely define which one-time fees must be included and which excluded from the calculation. This leaves the lender with some discretion to determine which fees will be included (or not) in the calculation. Consumers can, of course, use the nominal interest rate and any costs on the loan (or savings account) and compute the APR themselves, for instance using one of the free calculators on the internet. |
||