Finance
Under the Truth in Lending Act (TILA), the Annual Percentage Rate (APR) includes:
AOnly the interest rate on the loan
BThe interest rate plus certain loan fees and costs, expressed as a yearly rate✓ Correct
COnly the lender's origination fee
DThe property tax and insurance escrow amounts
Explanation
The APR reflects the true cost of credit, including the interest rate plus certain fees (points, origination fees, mortgage insurance), expressed as an annual rate. It allows consumers to compare loan costs.
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Key Terms to Know
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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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