A California buyer is comparing two deed of trust loan offers. Loan A has a 5.5% interest rate with 0 points. Loan B has a 5% interest rate with 2 points. Which tool required by federal law helps the buyer compare the true cost of these two loans?
Correct Answer
D) The Annual Percentage Rate (APR) disclosed in the Loan Estimate
The APR, required under TILA (Truth in Lending Act) and disclosed in the Loan Estimate, incorporates the interest rate plus points and certain fees into a single annualized rate. This allows the buyer to make an apples-to-apples comparison between loan offers with different rate/points combinations.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
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