Question what is the formula to caculate anual percentage rate
Answer Dear Teri:
Steps to calculate APR are:
1) Calculate one time fee - cost of loan closing. Add:
a) Points you pay
b) Pre-paid interest
c) Origination fees - processing, underwriting, doc. Preparation
d) Attorney fees
e) Notary fees
f) Private Mortgage Insurance
g) Application fee
2) Calculate cost-plus-loan. Add one time fees to total loan amount.
3) Calculate monthly payments for cost-plus-loan using interest rate of the loan:
Monthly Payments = cost-plus-loan * [(interest rate*((1+interest rate) power of total number of payments))/(((1+interest rate) power of total number of payments) - 1)]
4) Calculate what would be the interest rate with above monthly payments if applied towards original loan size.
