Finance
In New York, the 'note rate' on a mortgage and the 'APR' differ because the APR:
AIs always lower than the note rate
BIncludes the note rate plus the cost of certain fees spread over the loan term, resulting in a higher effective rate✓ Correct
COnly applies to adjustable-rate mortgages
DIs the rate charged in the first year only
Explanation
The note rate (also called the contract rate or stated interest rate) is the interest rate specified in the mortgage note. The APR is higher because it incorporates the note rate plus certain upfront costs (points, origination fees, mortgage insurance) spread over the loan term.
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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.
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.
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.
Math Concepts
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