APR vs Interest Rate by Chris Menard

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The interest rate is the cost of borrowing the principal amount. The APR is the interest rate plus other costs or fees. APR measures the true cost of borrowing money. In this video we will look at mortgage loans and use Excel to calculate the monthly payment, using the PMT function, then add the other loan fees and use the RATE function in Excel to calculate the APR. APR stands for Annual Percentage Rate.
02:23 interest rate vs apr
02:24 PMT function
04:00 Rate function to calculate APR
06:32 Truth in Lending Act (TILA) of 1968 gave us the APR.
Use the PMT function with the Interest Rate. You need to know: 02:24
1. The term in either months or years
2. The loan amount
3. The interest rate
PMT is a great function! It is one of many Financial functions in Excel. The payment function works on house/home loans and car/automobile loans. The PMT function returns the periodic payment for a loan. PMT has five arguments with three of them being required.
=PMT (rate, nper, pv, [fv], [type])
Rate is the interest rate. If you have a home mortgage or auto loan, you pay your loan monthly, you divide the rate by 12 (12 months in a year).
NPER is the total number of periods. For an auto loan, you may finance at 48 months, 60 months, or even 72 months. For a 30 year mortgage, NPER would be 360 (12x30).
PV is the present value. It is how much money are you borrowing.
The Annual Percentage Rate (APR) is the interest rate plus other cost or fees: 04:00
1. Loan origination fees
2. Application fees
3. Processing fees
4. Legal fees
5. Mortgage underwriting fees
To calculate the APR, you need the PMT amount and use the RATE function in Excel.
Other related videos and topics for APR vs Interest Rate.
Annual Percentage Yield - APY vs Interest Rate • Annual Percentage Yiel...
Chris Menard's Blog post on APY chrismenardtraining.com/post/...
DeKalb Chapter of CPAs - chrismenardtraining.com/event... over 10 Excel accounting videos.
Nerdwallet calculator I used: www.nerdwallet.com/blog/mortg...
#msexcel #personalfinance #APR #microsoftexcel #ratefunction #pmtfunction #financialfunctions
Chris Menard's website:
chrismenardtraining.com
Other personal finance videos by Chris Menard
The rule of 72 • The Rule of 72 demonst...
APY vs the Interest Rate • Annual Percentage Yiel...
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4 авг 2024

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Комментарии : 27

@unpoquitodetodoconNity Год назад

Thank you! Cause I asked this information specifically to a rep on a bank and they didn't know how to explain the difference. I was completely lost. Thank you for sharing your knowledge!

@ChrisMenardTraining Год назад

Glad to help. They should know this stuff. They do work at a bank. :-)

@tylerhouse5763 2 года назад

best apr on mortgage video out there

@ChrisMenardTraining 2 года назад

Thank you, Tyler. I agree! :-)

@manjulkatare 4 года назад

Thank you Chris for making this video, you made the APR term very easy to understand with this video :)

@ChrisMenardTraining 4 года назад

Thank you. I'm glad you liked the video.

@agrwlvivek 3 года назад

Beautifully explained Chris. Love it!

@ChrisMenardTraining 3 года назад

Awesome, thank you, Vivek.

@Croix98101 3 года назад

Wow!! This is so educational. Thank you so much!!!

@ChrisMenardTraining 3 года назад

you are welcome.

@zoewimmers9330 3 года назад

Great video! You explained this concept well.

@ChrisMenardTraining 3 года назад

Glad you liked it! That means a lot coming from a Mortgage Advisor. Thanks, Zoe.

@LuisGonzalez-dq4bg 4 года назад

Thank you Chris!!!!

@ChrisMenardTraining 4 года назад

My pleasure!!

@aashishchopra8128 4 года назад

Chris have you posted Part 2? Great vid btw.

@anthonyvazquez8742 3 года назад

Hi Chris, absolutely loved this video. I tried looking for part two where you go into more detail about points but couldn't find it. Can you help me find it please?

@tigerlilly6895 2 года назад

Thank you. I have a house mortgage and I'd already done what you do here which worked perfectly but not on a private loan I took out so how I found your video. The amount was $4,500 for 48 months. The APR is 34.999 (yes I know but I needed it) and the interest is 0.32869. The accrued interest started on 7/31/2020, but the payments started on 9/4/2020, the first monthly payment was $195.36 and then rest of payments of $178.10 for 48 months... I did get the right monthly payment but nothing else matches and I'm stumped.

@unknown-user 2 года назад

Don’t confuse your self, all you need to know is that this loan is costing you $84.70 a month in interest for 48 months. This is almost a 1 to 2 ratio, you are paying almost a 100% or 2X return to the lender.

@imaduddinfarih4835 2 года назад

thank you chris..clearly explained. i have question, how if we have number of compounding periods per year ?

@adeelicious1113 4 года назад

You are star

@ChrisMenardTraining 4 года назад

Thank you.

@rajasekarsj 3 года назад

Thanks Chris, I couldn’t find the part 2 video, could you please share the link ?

@FightKyle 3 года назад

ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-9kDWaN_r3Jg.html

@jim7631 4 года назад

I suppose what I keep getting stuck on is why we would SUBTRACT the fees from the borrowed amount. The fees are added to the total cost of the loan, not taken away. Am I missing something here?

@ChrisMenardTraining 4 года назад

Here is an example. You borrow money to buy a house. You borrow $250K at 4% for 30 years. The closing cost you must pay is $8K. If 8k is closing cost, the value of the loan is $242K and that is what you use to calculate the APR. That is why you subtract from the $250K. Here is an article also explaining what I typed. www.thebalance.com/annual-percentage-rate-apr-315533

@triggerray3443 4 года назад

Does that mean you financed the closing costs of $8K along with the purchase (or loan) amount of $242K totaling $50K (basically $242K for the house and $8K for the charges)? But since closing costs cant be considered principal or interest because they keep the fees, the APR kinda tells you how much your interest would be with different closing costs so you can compare apples to apples when loan companies quote rates and closing costs?

@kongol5036 3 месяца назад

I had no idea they had fees to borrow money I thought they make their money on interest alone. That's lame. Why can't they just incorporate the fees in their interest. This must have been some shady practices in the past no? Couldn't congregation have passed a law that just says no fees on top of interests? Or am I missing something here. Is there more to the fees other than just a fee to borrow money on top of interest. I guess closing costs are the fees in mortgages but are there fees on my CC?