Find the true Annual Percentage Rate (APR) of a loan once fees are included. The APR captures the real cost of borrowing — your note rate plus origination and closing fees, expressed as one comparable rate.
True cost of a loan with fees
The interest rate (note rate) determines your monthly payment, but it ignores fees. The APR rolls origination fees, points, and closing costs into a single annualized rate so you can compare loans fairly. Because you pay the same monthly payment but receive less cash (loan minus fees), your effective borrowing cost — the APR — is higher than the note rate. Federal Truth in Lending law requires lenders to disclose APR for exactly this reason.
For example, a $250,000 loan at a 6.5% note rate over 30 years has a payment of about $1,580. With $5,000 in fees, you effectively borrowed only $245,000 but still pay as if you borrowed $250,000 — pushing the APR to about 6.69%. When shopping lenders, compare APRs, not just rates: a lower rate with high fees can have a higher APR than a slightly higher rate with none.
The stated interest rate that sets your monthly payment. It excludes fees, so it understates the true cost.
The all-in annualized cost including fees. Always higher than the note rate when fees exist. Use it to compare offers.
A 6.25% rate with $8,000 fees may cost more than 6.5% with none. The APR reveals which loan is actually cheaper.