A California buyer is reviewing the Loan Estimate provided by a DRE-licensed mortgage broker for a deed of trust loan. The stated interest rate is 5.5%, but the APR is listed as 5.85%. Under federal TILA/Regulation Z and California Business & Professions Code §10240 (Mortgage Loan Disclosure Statement), what is the MOST likely reason for this difference?
Correct Answer
A) The APR includes the cost of discount points, origination fees, and other finance charges spread over the loan term
The APR reflects the total cost of borrowing, including the interest rate plus discount points, origination fees, mortgage insurance premiums, and certain other finance charges, amortized over the loan term. In California, DRE-licensed brokers must also provide the Mortgage Loan Disclosure Statement (MLDS) under B&P Code §10240, which provides additional California-specific cost disclosures. The APR is typically higher than the stated note rate.
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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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