The Annual Percentage Rate (APR) is the interest rate when fees are included with the mortgage amount. Because the fees increase the cost of the loan, the effective interest rate on the borrowed amount is higher. For example, a borrower is charged two points for the issuance of a mortgage (one point is equal to 1% of the mortgage amount). If the mortgage amount is $60,000 for 30 years with an interest rate of 11.5%, what is the APR?
Part 1: Calculate the actual monthly payment
| Variable | Enter |
|---|
| Clear | |
| Pmt Timing | End |
| Present Val | 60,000 |
| Future Val | 0 |
| Intrst/Yr% | 11.5 |
| Periods | 360 |
| Periods/Yr | 12 |
| Cmpnds/Yr | 12 |
Compute Payment by scrolling to its variable and choosing Calculate from the menu.
Calculating shows payment equal to –$594.17. It is negative because it is a cash outflow.
Part 2: Calculate the APR
| Variable | Enter |
|---|
| Present Val | 58,800 |
Present Value is the loan amount less fees (60,000 - 2% in the calculator). Compute Interest/Yr% by scrolling to its variable and choosing Calculate from the menu.
Calculating shows interest per year equal to 11.76%.
