Santa Clara County APR calculator---The Annual percentage rate also known as the APR was implemented to inform borrowers of the “real” cost of borrowing. HOWEVER, this value is ONLY accurate for fixed rate loans.
The APR for ARM loans is virtually MEANINGLESS. Not only it is meaningless, it’s inaccurate and can be misleading.
Here is an example of what I’m talking about. Let’s say you borrow $650,000 and you compare a 30 year fixed rate loan at 6.875% and a 5/1 ARM at 6.275%, assuming the costs for this loan total $4,500 with no points.
To calculate the APR for the 30 year fixed you do the following. First determine the monthly payment required to amortize $650,000 over 30 years. The monthly payment is $4,270
Next deduct the cost of $4,500 for getting the loan and 15 days of advance interest of $1836 from the original amount of $650,000. So we have 650000 – (4500 + 1836) = $643,664.
Now, if you are using an HP12C or a TI BAII plus calculator, use the same payment of $4,270 against the $643,664 and solve for the interest. For those without these calculators or something similar will have to trust me this calculation is correct. We have an APR 6.972%
To use Santa Clara County APR calculator for an ARM loan is quite more complicated. You start with the same steps above but you calculate the first five year’s payments on the given start rate of 6.275% which gives us a payment of $4,012 and the remaining 25 years are calculated on the fully indexed rate payment.
Use Santa Clara County APR calculator to calculate the fully indexed rate, add the 2.60% margin to TODAY’s 5.67% index and you get 8.27%. Note on this example we are using today’s index rate and it does change so it won’t be the same. We use this fully indexed rate to helps us calculate the monthly payment required to amortize the loan balance at the end of the 5th year ($606,872) over the remaining twenty-five years. The monthly payment on this example is $4,793
The total payments for the first five years are added to the total payments for the remaining 25-years, and then divided by 360 to get the average monthly payment for 30 years. Then again using the calculator solve for the interest. The APR should be 7.86%.