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APR Calculation Truth in Lending

AMERICAN EXAMPLE:
Discount points, often referred to simply as points, are usually the most significant part of fees charged by lenders or brokers. Each point equals 1% of your loan amount (Balance).

In the USA, the Truth in Lending interest rate is called the APR. For a 30 year loan at 10% plus the three points repaid over the full 30 years, the APR is 10.37% (you enter the 3 points, 3% of $100,000 as $3000 as the Dollar Discount).

(Screenshot 1)

Another way to arrive at the APR for the full 30 years is to use the CALCULATOR and input the information and calculate the payment as $877.57 per month. Subtract the $3000 from the principal, continue to make payments the same and recalculate the AIR to be 10.3657%, thus the APR is 10.37% at two decimal places.

(Screenshot 2)

The APR depends upon how long you keep your loan. If the $100,000 loan was repaid after 6 years (72 months) rather than 30 years (360 months) its APR would be 10.70% as shown below.

(Screenshot 3)

 

 


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Introduction to Canadian and American Mortgages

Seminar on prepaying principal (Part A)

Seminar on prepaying principal (Part B)

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