How to Calculate Mortgage APR Rate
The annual percentage rate (APR) is the total cost that a borrower pays on a mortgage, which is expressed as a single percentage rate, according to Investopedia. When you get a mortgage, you receive two percentages: the mortgage interest rate and the APR. The mortgage interest rate is the rate used to calculate the monthly mortgage payment. The APR is the rate used to calculate the total cost of obtaining a mortgage, which takes into account the closing costs. The mortgage lender provides this figure to you, as required by federal law, but you should still understand how it is calculated.
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Things You'll Need
- Mortgage amount
- Mortgage interest rate
- Closing cost amount
- Financial calculator
Instructions
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1
Calculate the monthly mortgage payment with closing costs. With a financial calculator, enter the interest rate and then hit the INT button, which stands for interest; enter the number of months for the mortgage term, then press N, for number of months; and enter the amount of the mortgage (including the closing costs), then press PV for present value. Then hit the PMT button, which stands for payment, to calculate the monthly mortgage payment.
For example, if the mortgage interest rate is 7 percent for a 30-year mortgage in the amount of $100,000 ($99,000 for the mortgage and $1,000 in closing costs), you would enter 7 INT, 360 N, 100,000 PV and then press PMT to get a monthly payment of $665.30.
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Set up the APR calculation. The formula to calculate APR requires the number of months (term) of the mortgage, the monthly payment calculated in Step 1 and the actual amount of the mortgage (minus the closing costs).
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3
Calculate the APR. Using your financial calculator, enter the number of months in the mortgage and then press the N key. Then enter the monthly mortgage payment calculated in Step 1 as a negative number and press the PMT key. Finally, enter the mortgage amount (without the closing costs) and press the PV key. Then hit the INT key to calculate the APR on a monthly basis. Multiply this figure by 12 to obtain the annual percentage rate.
For example, using the same figures used in Step 1, enter 360 N, -665.30 PMT and 99,000 PV. Press INT for an answer of about .592. Multiply .592 by 12 to get an annual percentage rate of 7.0999 percent.
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