Finance
The note rate (mortgage interest rate) and the annual percentage rate (APR) differ because:
AThe APR includes only the interest rate, while the note rate includes fees
BThe APR reflects the true cost of borrowing including fees, while the note rate is just the interest rate✓ Correct
CThe note rate is always higher than the APR
DThe APR and note rate are always identical
Explanation
The note rate (nominal interest rate) is the stated interest rate on the loan. The APR includes the note rate plus other loan costs (origination fees, points, mortgage insurance, etc.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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