Finance
The 'Annual Percentage Rate' (APR) on a mortgage is typically higher than the stated interest rate because:
AThe APR includes the effect of compound interest
BThe APR includes both the stated interest rate and certain loan costs (such as points, origination fees, and mortgage insurance), spread over the loan term✓ Correct
CThe APR reflects future interest rate increases
DThe APR accounts for property tax payments
Explanation
The APR is higher than the stated (note) interest rate because it incorporates other loan costs — such as discount points, origination fees, mortgage insurance premiums, and certain other fees — spread over the loan term. TILA requires APR disclosure to allow borrowers to compare the true cost of different loan offers.
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