| nds for Annual Percentage Rate. Basically, it means | | | | Suppose the mortgage lender lends $250,000 with |
| the true cost of borrowing. This includes the interest | | | | 6.5% interest rate, 2 discount points, and $1,200 |
| rate plus all additional cost. Additional Cost usually | | | | additional cost on 30 year mortgage, the regular |
| includes points, pre-paid interest rate, loan processing | | | | monthly mortgage payment equals $1,580.17. Payment |
| fee, underwriting fee, document preparation fee, | | | | equals [P(1 + r)nr]/[(1 + r)n - 1] where P means principal, |
| mortgage insurance, loan application fee, closing fee, | | | | r means interest rate, and n means number of period. |
| and title fee. | | | | With discount points and additional cost included, your |
| APR remains controversial as each mortgage lender | | | | effective monthly mortgage payment equals $1619.36. |
| calculates differently. Lenders, bankers, mortgage | | | | Effective Payment equals [(P + a + (P * d))(1 + r)nr]/[(1 |
| brokers, and borrowers easily get confuse on | | | | + r)n - 1] where P means principal, a means additional |
| calculation. By law, the mortgage lender must provide | | | | cost, d means discount points, r means interest rate, |
| or disclose the APR to the borrower or mortgagor. | | | | and n means number of period. |
| Steps to calculate annual percentage rate (APR) | | | | Annual Percentage Rate (APR) |
| - Sum up all the additional cost. | | | | Now, the Annual Percentage Rate calculations equals |
| - Calculate the monthly mortgage payment. | | | | to 6.75%. APR equals [(a + (P * d)) / (P - a - (P * d))] * |
| - Calculate the APR using the total additional cost and | | | | 10 + r where P means principal, a means additional |
| monthly mortgage payment. | | | | cost, d means discount points, and r means interest |
| Monthly mortgage payments | | | | rate. |