Nominal versus effective rate
A mortgage rate is a nominal annual rate charged monthly. Because interest compounds, the effective annual rate is slightly higher, and fees push it higher again.
The calculator finds the monthly rate at which your payments exactly repay the money you actually receive, then turns it into an annual rate including the effect of compounding: APR = (1 + monthly rate)^12 − 1. Fees paid upfront reduce the money you receive, so they push the APR up.
Worked example
A £200,000 mortgage at £1,169.18 a month over 25 years has a nominal rate of 5.0% and an effective rate of 5.1%. With £1,500 of fees, the effective rate is 5.2%.
Deals and fees
Over a two- or five-year fixed deal, fees make a bigger difference to the effective cost than over the full term. Compare deals on total cost over the fixed period.
Inputs for the home loan effective interest rate calculator
Amount borrowed
The amount of the loan.
Upfront fees
Any arrangement or other fees you pay at the start, or that are taken from the loan. Enter 0 if there are none.
Monthly payment
Your regular monthly repayment from the quote or agreement.
Term
How many years the payments last.
CALCULATOR QUESTIONS
Home loan effective interest rate calculator questions
What is an effective interest rate?
The annual rate once monthly compounding and fees are included.
Why is it higher than my mortgage rate?
Because interest compounds monthly and fees add to the cost.
Is it the same as the APRC?
Similar, but the APRC also assumes you move to the lender's standard rate after your deal.
Do fees matter over 25 years?
Less than over a short deal, as the example shows.