2823 Understanding the APR

The Annual Percentage Rate (APR) is the cost of consumer credit, as a percentage, spread out over the term of the loan. It includes any charges payable directly or indirectly by the consumer and imposed directly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. Charges that are included in the APR calculation should be indicated as Prepaid Finance Charges. If you would like to check Point's APR against the U.S. Comptroller of Currencies APR Software Program: APRWIN, please click here.

Note: Calyx Software cannot provide you with a list of allowable and non-allowable Closing Costs that are included in the APR Calculation due to variances between lenders. Please consult with your lender for a list of items that you are able to include or exclude from your APR calculation.

APRs & Prepaid Finance Charges

Prepaid Finance Charges are certain charges made in connection with the loan, which must be paid upon the close of the loan. These charges are defined by the Federal Reserve Board in Regulation Z and the charges must be paid by the borrower. These charges affect the APR calculation. Each line item on the Good Faith Estimate includes a PFC box next to the dollar amount of the item; be sure to mark all items that are to be included in the APR with PFC on the Good Faith Estimate. On the Truth In Lending the Ppd Fin field will reflect the total amount of your PFC items selected on the Good Faith Estimate; the Amount Financed will reflect your total loan amount minus your Ppd Fin total.

APRs & Odd Days of Interest

Regulation Z: Truth-in-Lending

226.17: General Disclosure Requirements


Odd Days of Interest is calculated differently from other line items on the Good Faith Estimate. Please refer to the guidelines below taken from Regulation Z on how Odd Days of Interest affects the APR calculation:

1.  Payment-Schedule Irregularities. When one or more payments in a transaction differ from the others because of a long or short first period, the variations may be ignored in disclosing the payment schedule, finance charge, annual percentage rate, and other terms. For example:
  • A 36-month auto loan might be consummated on June 8 with payment due on July 1 and the first of each succeeding month. The creditor may base its calculations on a payment schedule that assumes 36 equal intervals and 36 equal installment payments, even though a precise computation would produce slightly different amounts because of the short fixed period.
  • By contrast, in the same example, if the first payment were not scheduled until August 1, the irregular first period would exceed the limits in section 226.17(c)(4); the creditor could not use the special rule and could not ignore the extra days in the first period in calculating its disclosures.
 2. Measuring Odd Periods. In determining whether a transaction may take advantage of the       rule in section 226.17(c)(4), the creditor must measure the variation against a regular                   period. For purposes of that rule:
  • The first period is the period from the date on which the finance charge begins to be earned to the date of the first payment.
  • The term is the period from the date on which the finance charge begins to be earned to the date of the final payment.
  • The regular period is the most common interval between payments in the transaction.

In transactions involving regular periods that are monthly, semimonthly, or multiples of a month, the length of the irregular and regular periods may be calculated on the basis of either the actual number of days or an assumed 30-day month. In other transactions, the length of the periods is based on the actual number of days.

3. Use of Special Rules. A creditor may utilize the special rules in section 226.17(c)(4) for purposes of calculating and making some disclosures but may elect not to do so for all of the disclosures. For example, the variations may be ignored in calculating and disclosing the annual percentage rate but taken into account in calculating and disclosing the finance charge and payment schedule.
Relation to Prepaid Finance Charges. Prepaid finance charges, including Odd Days or Per Diem Interest, paid prior to or at closing may not be treated as the first payment on a loan. Thus, creditors may not disregard an irregularity in disclosing such finance charges.

Note: Description from APRWIN

Using odd days will affect the APR calculation in APRWIN. If odd days are used the APR will be lower. APRWIN was developed for examiners to verify TILA disclosures that banks provide consumers. Therefore, odd days interest is included, even though banks have the option under 226.17(c)(4) to ignore the odd days under specific circumstances, which results in an APRWIN APR that is lower than the bank's (if the bank calculated its APR correctly). To determine if the bank disclosed accurately and whether restitution may be required, the concept used in the APRWIN software is to calculate the lowest possible correct APR.

APRs & Adjustable Rate Mortgages (ARMs)

One common situation that occurs when a Borrower receives a Truth-In-Lending and a copy of their note, is the column that indicates the Amount Financed is less than the loan amount they are actually financing. It is here that many Borrowers leap before they look and call to find out why they are only receiving a $146,925 loan when they applied for a $150,000 loan. It is here that APRs enter the picture.

In choosing which loan is best for your needs, it is important to look at other factors in addition to the APR. If you don't plan on keeping the property or the loan for the full term, the calculation of actual costs needs to be adjusted, generally this will increase the APR calculation. Calculating APRs on ARMs is a much different set of calculations.

In calculating APRs on ARMs you need to take into consideration not only the starting interest rate, but any adjustments that will occur until you reach the fully indexed rate. The fully indexed rate is determined by adding the index to the margin.


You may notice on the Truth In Lending that the Ppd Fin field is blank but your APR is still higher than the Note Rate. This is because you have not selected any items on the Good Faith Estimate to be a PFC item, but you have included MI on your loan. Mortgage Insurance is automatically included in your APR if it is included in your file.