Finance
The annual percentage rate (APR) on a mortgage differs from the stated interest rate because APR:
AIs always lower than the stated rate
BIncludes the interest rate plus fees and costs expressed as a yearly rate✓ Correct
CApplies only to adjustable-rate mortgages
DIs set by the federal government
Explanation
APR represents the true annual cost of borrowing, incorporating the interest rate along with fees, points, and other costs. It allows borrowers to compare the actual cost of different loan offers.
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Key Terms to Know
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.
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.
Math Concepts
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