Understanding Annual Percentage Rate (APR) Mortgage Calculators

APR stands for Annual Percentage Rate. Basically, it means the true cost of borrowing. This includes the interest rate plus all additional cost. Additional Cost usually includes points, pre-paid interest rate, loan processing fee, underwriting fee, document preparation fee, mortgage insurance, loan application fee, closing fee, and title fee.

APR remains controversial as each mortgage lender calculates differently. Lenders, bankers, mortgage brokers, and borrowers easily get confuse on calculation. By law, the mortgage lender must provide or disclose the APR to the borrower or mortgagor.

Steps to calculate annual percentage rate (APR)

- Sum up all the additional cost.

- Calculate the monthly mortgage payment.

- Calculate the APR using the total additional cost and monthly mortgage payment.

Monthly mortgage payments

Suppose the mortgage lender lends $250,000 with 6.5% interest rate, 2 discount points, and $1,200 additional cost on 30 year mortgage, the regular monthly mortgage payment equals $1,580.17. Payment equals [P(1 + r)nr]/[(1 + r)n - 1] where P means principal, r means interest rate, and n means number of period. With discount points and additional cost included, your effective monthly mortgage payment equals $1619.36. Effective Payment equals [(P + a + (P * d))(1 + r)nr]/[(1 + r)n - 1] where P means principal, a means additional cost, d means discount points, r means interest rate, and n means number of period.

Annual Percentage Rate (APR)

Now, the Annual Percentage Rate calculations equals to 6.75%. APR equals [(a + (P * d)) / (P - a - (P * d))] * 10 + r where P means principal, a means additional cost, d means discount points, and r means interest rate.

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Mortgage Calculators

Mortgage calculators are handheld devices much like ordinary mathematical calculators. They are specially programmed to compute values relating to mortgages, such as interest rates, amortizations and monthly payments.

Mortgage calculators are very useful tools to check whether the user is qualified to obtain a loan. They work for conventional loans as well as loans insured by the Federal Housing Administration (FHA) or the Veterans Administration (VA). Mortgage calculators can compute the total payment including principal, interest, taxes and insurance, called as the PITI payment. Payments can be calculated irrespective of the time period how it is paid - quarterly, monthly or biweekly.

Besides these, mortgage calculators can calculate the amortization schedules on a mortgage. They can calculate balance on the mortgage taken. There are some calculators that can calculate the future value of a mortgage. Not only that, some mortgage calculators have rent-versus-buy features, which can calculate display which of these two options would be better in the long run.

The buttons on a mortgage calculator include the numeric keys from 0 to 9 and the usual keys on a mathematical calculator, such as addition, subtraction, multiplication, division, percentage, clear (CE), equals to, etc. In addition to these keys, there are special mortgage-related keys such as total payment (TP), solve, recall and principal value (PV). There is also a mode or shift button, which allows the user to switch from finance, currency or tax modes. Most mortgage calculators also do currency conversions and tax calculations.

Mortgage calculators are lightweight and can generally be carried in the hip pocket (though this is not advisable). Better versions have plastic covers that can completely cover the calculator when not in use. They have integrated circuitry within their bodies and are operable with one or two 1.5-volt pencil cells. Since mortgage calculators are used for quick calculations, their buttons are usually larger in size than normal calculators. Depending on the features present on a mortgage calculator, they may be priced between $10 and $60.

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