The formula used to calculate annual percentage rates on mortgage loans is L - F = P1/(1 + i) + P2/(1 + i)2 +… (Pn + Bn)/(1 + i)n, cites the Mortgage Professor. Known as the internal rate of return, the APR includes points and fees charged by lenders.
Continue ReadingIn the formula, L represents the loan amount, F represents points and fees, P represents the monthly payment, n represents the month when borrowers pay the balance in full, and Bn represents the balance in month n. The lowercase i represents the internal rate of return, or in the case of a mortgage loan, the interest rate on the principal amount of the loan, explains the Mortgage Professor.
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