An MLO is comparing loan products for a borrower and notices that Lender A's APR is 4.25% while Lender B's APR is 4.18%, but Lender A's interest rate is lower. What most likely explains this discrepancy?
Correct Answer
C) Lender A has higher fees or costs included in the APR calculation
The APR includes the interest rate plus other loan costs and fees spread over the loan term. If Lender A has a lower interest rate but higher APR, it indicates that Lender A has higher upfront fees, points, or other costs that are factored into the APR calculation under Regulation Z (Truth in Lending Act).
Why This Is the Correct Answer
The APR includes the interest rate plus other loan costs and fees spread over the loan term. If Lender A has a lower interest rate but higher APR, it indicates that Lender A has higher upfront fees, points, or other costs that are factored into the APR calculation under Regulation Z (Truth in Lending Act).
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