A lower advertised rate paired with a bigger upfront fee can carry a higher true cost than a slightly higher rate with a smaller fee — APR is what makes the two comparable.
How it works
The borrower repays the full loan amount’s payment schedule while actually receiving less money upfront (the loan amount minus the fee). This calculator solves for the interest rate that would make that smaller amount received match the stated payment schedule — the effective APR.
What this does not include
This isolates the origination fee’s effect on APR alone — it doesn’t include other closing costs, which a full CFPB-mandated APR disclosure on a real loan estimate would also fold in.
How to use this calculator
- Enter the loan amount, stated rate, and term.
- Enter the origination fee or points charge in dollars.
Frequently asked questions
Why is the effective APR higher than the stated rate?
Because the borrower pays back the full loan amount’s schedule while only receiving the loan amount minus the fee upfront — the same payments on less money received means a higher true rate.
Is a zero-fee loan always the better deal?
Not necessarily — lenders often price a zero-fee loan with a higher stated rate, so comparing APRs (not just fees or rates alone) is what actually settles it.
Does this apply to points that lower the rate?
This calculator models a fee with no rate change; this site’s separate mortgage points calculator covers the break-even case where points do lower the rate.
