Precision Financial Calculator

Example 3-4 Effective APR

You have a home mortgage of $150,000 for 15 years with an interest rate of 7.0%. The total closing cost is $3,000. What's your effective APR? If after 5 years, you buy a new home and want to pay off the balance of your first mortgage, what is your effective APR? What if you have a monthly mortgage charge of 0.25%?

[Answer: 7.326%, 7.533%, 7.814%]

[Procedure]

On the APR calculator tab (for the new version, it's under the Loan tab), type in 150,000 for the loan amount, 0.0% for the points, 3,000 for the other cost, 7.0% for the interest rate, 15 for both the Amortization Period Years and Loan Term Years. Check the Total Costs. Uncheck Mortgage Cost and Other Monthly Costs. Click the ReCalc button, you get the Effective APR 7.326%. Change Loan Term Years to 5 and click ReCalc. You get the Effective APR 7.533%. Enter 0.25% to the Mortgage Insurance and check the Insurance Cost Per Month, then click Recalc, you get the Effective APR of 7.814%.

Note the Monthly Payment for the first two cases are all $1,348.24. Also, you can see that the earlier you pay off the remaining balance the higher the effective interest rate.

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