Finance
What does the annual percentage rate (APR) include that the stated interest rate does not?
AThe property tax escrow amount
BPoints, origination fees, and other financing costs expressed as a yearly rate✓ Correct
CHomeowner's insurance premium
DThe principal repayment amount
Explanation
APR reflects the total cost of borrowing by including the interest rate plus points, origination fees, mortgage insurance, and other loan costs, expressed as an annual percentage.
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Key Terms to Know
Amortization
The 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.
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.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
Math Concepts
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