What do the APR calculations include?

The Annual Percentage Rate (APR) calculations include total interest, points, and fees, making it a comprehensive representation of the cost of borrowing for a loan. The APR is designed to give borrowers a clearer understanding of the true cost of credit over the life of the loan, as it not only reflects the nominal interest rate but also incorporates additional costs associated with obtaining a loan.

This means that when calculating APR, one considers the interest charges along with any upfront costs such as points that may be charged to lower the interest rate, as well as other lender fees. By including these components, the APR allows potential borrowers to compare different loan offers on a like-for-like basis, helping them to make more informed financial decisions.

In contrast, focusing solely on monthly payments, loan amounts, or closing costs would not provide a complete picture of the overall cost of the loan. Monthly payments do not account for the additional costs incurred over the loan term, while loan amounts and closing costs alone do not reflect the total financial commitment involved in the borrowing process. Thus, the inclusion of total interest, points, and fees in the APR calculations is essential for understanding the total cost of a mortgage or loan.