Kudos for your effort; that was outstanding! Im interested to see the TIL
position on calculating the APR. Thanks again for your assistance.

"joeu2004" wrote:

On Jul 25, 8:30 pm, mlion wrote:
Here are the websites that I was using to validate my APR;
http://www.lenderhomepage.com/tools/...age-apr-calcul...
http://www.dinkytown.net/java/Mortga...djustable.html

Aha! I believe I know how those calculators arrive at an "APR" of
7.168% and 7.144% with and without the prepaid interest of 598.96 --
at least in the case of an initial rate of 5.75% for 36 months and
7.25% for the remaining 324 months.

Note that in that case, the total of payments is 599,582.80 and,
dividing by 360, the average payment is 1665.51. (The lenderhomepage
calculator truncates the average to 1665.50.)

Making the simplifying assumption of a constant payment of 1665.51
over the full 360-month term, we do indeed compute an annual rate of
7.168% and 7.144% with and without the prepaid interest of 598.96. In
Excel, they can be computed with the RATE() function as follows:

=12*rate(360, 1665.51, -(2500000-2500-750-598.66))
=12*rate(360, 1665.51, -(2500000-2500-750))

Clearly, that is only an approximation of the APR -- and not a good
one(!). I do not believe it follows the algorithm for computing the
APR in Appendix J of Reg Z -- the US regulation commonly called "Truth
in Lending".

PS: That still does not explain how the dinkytown calculator computes
the same "APR" of 7.144% (without prepaid interest) with different
payment schedules based on varying adjustments. The average payments
differ significantly, resulting in different "APRs" based on the
simplifying paradigm above. For example, for adjustments of 0.5% and
1.0%, the simplified "APR" would be 7.067% and 7.118% respectively. I
think the dinkytown calculator simply has a defect.