Calculating the APR

Creating a Rate Sheet > Calculating the APR


	Calculating the APR

Our APR equation is taken from Appendix J of Title 12 of the Code of Federal Regulations, Volume 2, Chapter 2, part 226. (Click here to go to an electronic version of the code of regulations.) It's a quite lengthy calculation with many iterations. Most calculators actually do it incorrectly, however the Calyx Point software is said to be quite accurate. (If you have Calyx Point, you can use it to double-check us if you wish!)

The phenomenon known as a "no-change" or "stable-rate" scenario is often misunderstood. This is a phenomenon that was created and explained by the Federal Reserve in order to make Truth in Lending Forms more accurate. It is this phenomenon that causes APR's on ARM's to be below the initial rate. Here's an example with a 3/1 ARM:

Initial rate is 5%
Assume the current index rate (which we pull in automatically for you) is 2%. Then add the margin of 2.25% to get a result of 4.25% for the changed rate.
For 36 months, the APR is calculated with the rate of 5%
For the remaining 324 months, the APR is calculated with a rate of 4.25% (the stable-rate or no-change rate).

Now, if the fees are low enough - nothing or only a few hundred or thousand dollars depending on the loan amount - the APR is lower than the interest rate. This is reflected on your site's Rate Sheet page.