A mortgage has two prices: the rate and the cash at closing

Published 2026-10-28 · Last reviewed 2026-10-28

A mortgage has two prices, and only one of them is advertised. The first is the interest rate on the balance; the second is the cash that changes hands before you ever make a payment. Fees can turn an 8 percent loan into a higher annual percentage rate, closing costs can add a five-figure sum to the purchase, and the loan program itself decides whether the extra cost arrives as mortgage insurance, a funding fee, or neither. This page prices each layer on its own numbers, then puts FHA and VA side by side.

APR is the rate plus the fees, spread across the term

A $20,000 loan at a stated 8 percent over 5 years has a monthly principal-and-interest payment of $406. The $800 of upfront fees does not change that payment, but it cuts the cash actually received to $19,200, so the same payments now imply an APR of 9.74 percent - 174 basis points above the note rate. Across the term the interest is $4,332 and the cost of credit, interest plus every fee, is $5,132. The advertised rate is the price of the money; the APR is the price of the money plus the price of getting it.

Closing costs are a second price tag

On a $400,000 purchase with $80,000 down the loan is $320,000. Origination and points at 0.5 percent add $1,600, other lender fees bring the lender total to $3,200, appraisal, title and recording make $4,300 of third-party work, and $3,000 of property tax and insurance is collected into escrow. Together that is $10,500 charged at closing - 2.63 percent of the price - before the down payment is counted. The cash to close is $90,500, of which 88.4 percent becomes equity and the rest pays for the transaction itself. Only the down payment survives a resale; the closing-cost share is the number a later refinance has to earn back.

FHA and VA move the cost into insurance and fees

An FHA loan at $350,000 with the minimum 3.5 percent down puts $12,250 down and leaves a base loan of $337,750. The upfront premium is 1.75 percent of that base, $5,911, and it is financed, so the amortized balance is $343,661. At 6.5 percent over 30 years the principal and interest is $2,172; the annual premium at 0.55 percent adds $155 a month, for $2,327 in total. A VA loan on $400,000 with $80,000 down charges a 2.15 percent funding fee on the $320,000 base - $6,880 - financed into $326,880, which produces $2,066 of principal and interest and no monthly mortgage insurance. The trade is explicit: FHA pairs an upfront premium with an annual premium, while VA charges a larger one-time fee and nothing monthly.

Where these numbers come from

• The APR. It finds the monthly rate that discounts $405.53 for 60 months back to the $19,200 actually received, then reports it as an annual rate. The 174 basis points of uplift are the whole difference between 8 percent and 9.74 percent.
• The closing costs. Origination is charged on the loan amount rather than the price, lender and third-party fees are kept in separate buckets, and the prepaid escrow is added without pretending it is a fee. That is how $10,500 and $90,500 are built.
• HUD Handbook 4000.1 and the VA fee schedule. The 1.75 percent upfront premium on the base loan, the annual premium rate and the VA funding-fee tier are the published program rules; the calculators carry them as labeled percentages rather than hidden defaults.
• The monthly payments. Both come from the same amortization steps on the financed balance, so the FHA and VA rows differ only by the upfront charge that was added to principal and by the monthly insurance line.

What this guide does not cover

It prices one small loan for the APR, one purchase for closing costs, and one FHA and one VA loan at the same note rate. It does not model property tax, homeowners insurance or HOA dues, conventional private mortgage insurance, adjustable rates, a points buydown and its break-even month, FHA loan limits, VA entitlement and the certificate of eligibility, seller-concession caps, the duration of FHA mortgage insurance, or state-specific transfer taxes and recording fees. A real Loan Estimate also includes services you can shop for, and the APR on a mortgage follows its own finance-charge rules rather than the closed-end consumer-loan formula used here. The numbers are arithmetic, not an underwriting decision.

Break down an offer in the APR Calculator, add up the cash at closing in the Closing Cost Calculator, then compare programs in the FHA Loan Calculator and the VA Loan Calculator.

Estimates only - not financial, tax or legal advice, and it does not predict how a lender will price a particular loan. Read the full disclaimer.