Working out the annual percentage rate on your mortgage can be difficult. Looking beyond the interest rate is important. Lender fees, mortgage points, and any other upfront costs can affect the APR on your loan. By adding a few details about your financing options, you can quickly find out your total cost of borrowing.
The difference between interest rate and APR
Banks and lenders can offer several interest rates to borrow money for a mortgage. They can also have different service costs that are not included in the interest payment. The other dues make it difficult to understand exactly how much a loan will cost you.
The annual percentage rate on a mortgage is higher than the interest rate because it factors in all the added charges. It looks at mortgage points, lender fees, broker fees, and closing costs for the mortgage. By totaling these fees you can understand the cost of borrowing better than looking at interest rate alone.
Then, you can compare the APRs between loans to determine which financing option is best for you.
What are the closing costs on a mortgage?
Even though your monthly mortgage payment will cover the cost of the home, it’s important to consider the other expenses involved. Some fees are paid at the beginning of the buying process, like inspection fees, while other costs are incurred when the purchase is finalized. The closing costs will also vary depending on which state you are the property is in.
Property appraisal. In order to get financing from a lender, you will require a professional property evaluation. This evaluation costs up to $200 and determines the fair market value of the mortgage. The value may or may not always coincide with the selling price of the property.
Survey fee. This cost goes towards verifying the boundaries of the property but is not required in all states.
Inspection fees. If you are purchasing a new home, this may not apply. Older homes need inspections to evaluate the structures and systems that make up the house. The cost for a home inspection is several hundred dollars but could save you from buying a home with extensive internal issues.
Your credit report. When you apply for a mortgage loan, the lender will require a credit report. There is a small cost on your behalf to get this report.
Record changes. There can be a small cost to have your mortgage registered with the state and local governments.
Title transfers. Changing ownership of a can home require small transfer fees as well.
Mortgage points. You can buy mortgage points to lower your interest rate. Each point costs about 1% of the total loan amount.
Taxes. Like anything you buy, taxes are factored into the purchase price. The taxes on your home are prepaid at closing.
Legals. If an attorney is required to review your closing documents, this could cost you several hundred to a thousand dollars.
Broker fees. A broker can help negotiate the best financing option for you. Their fee can be included in your closing costs as well. This fee can vary from 1%-2% of the total loan amount, depending on the complexity of your loan application.
Lender origination fee. Your creditor will charge approximately 1% of the total loan amount as a service fee for processing your loan application. For a mortgage that is $250,000, the origination fee would be $2,500.
Don’t forget that there could also be expenses for home insurance, moving, and furnishing the new home.
What is this calculator for?
The mortgage APR calculator is very easy to use. It is designed to help you work out the total cost of your mortgage loan. It only needs some information about your financing offers. This includes your loan amount, term length, and interest rate. This calculator also looks at all other costs such as prepayments, closing costs, and broker fees.
The system will then generate your mortgage payments. You can view your total payments including interest and total closing costs. You will also get the annual percentage rate on your loan.
How to use the calculator
The annual percentage rate calculator has two parts: an information intake and integrated results. You can start when you have your mortgage details on hand, starting with the loan information.
1. On the first line of the calculator is the mortgage amount, where you add the money you need to borrow. You can even use the arrows to increase or decrease the dollar values quickly. When comparing offers from different lenders, this number should stay the same.
2. The second line of the calculator requires the term in years. This is the amount of time needed to repay the loan. The terms can be anywhere from 10 years up to as many as 50 years. The most common term lengths on mortgage loans are 15 and 30 years.
3. Next, the interest rate can be added to the third line. The interest rate is based on many factors. It can change based on the loan amount, property location, current market, and your credit score. When you have a better credit score, the banks will offer you a better interest rate.
The next part of the calculator is for the mortgage closing costs.
4. On the fourth line of the calculator, you can add the origination fee percent. This is the percentage of the loan amount that is charged by the creditor. Most lenders charge a 1% origination fee on the loan but can it be more based risk level of the application.
As an example, a 1% origination fee on a $120,000 loan would be $1,200.
5. Following is the fifth line, points paid. Here you may add any mortgage discount points that will be used to reduce the interest rate. Mortgage points can be purchased at the cost of 1% of the original loan amount. The points are tax deductible unless used to pay a mortgage broker’s commission.
6. Let’s continue to the sixth line where you may find the other fees to include. You should add any additional costs to secure the mortgage here. This may include but is not limited to; down payments, prepaid expenses, and broker fees.
7. Finally, you may request the amortization report in an annual or monthly breakdown through a simple selection.
Your mortgage APR results
Once these details have been added, you will be provided with prompts left of the inputs. You can view your monthly mortgage payment, total payments and interest on the loan, as well as total closing costs. You can also find the full APR on the mortgage here, to help you compare different loan options.
In some instances, a loan with a lower stated interest may be a poor value if the fees are too high. Meanwhile, a loan with a higher interest and reduced fees may actually be a better value.
There are some helpful tabs beneath the information inputs, such as the principal balance chart. This chart outlines how your payments reduce the principal balance on the mortgage.
The next tab is the payment schedule. This table provides a breakdown of the principle and interest payments throughout the term of the loan. You can also view the total payments and end principle balance in each instance.
All the columns are conveniently scalable in this table. This is helpful if you need more room to see any significant loan values. Additionally, you can switch back and forth between monthly and yearly reports without losing information.
With this information, you can find the best offer for your next home purchase. You can return as you get more information about your mortgage options or as your finances change.
Remember to bookmark this calculator and become a member to place this calculator widget on your website. You can even use your company’s logo and colors.