Finance
The annual percentage rate (APR) differs from the stated interest rate because:
AAPR is always lower than the stated rate
BAPR includes additional costs like points and fees, providing a truer cost of credit✓ Correct
CAPR is used only for adjustable-rate mortgages
DAPR is set by the federal government for each state
Explanation
APR includes the interest rate plus other financing costs (origination fees, mortgage insurance, certain points) expressed as an annual rate. It provides a standardized measure that allows borrowers to compare the true 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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