During a mortgage consultation, Raj notices that one lender quoted a 6.125% interest rate but a 6.34% APR on the same fixed-rate loan. What does the higher APR usually indicate?
Correct Answer
B) That the annual cost measure includes the note rate plus points and certain finance charges
APR is a broader measure of borrowing cost than the note interest rate. It generally includes the rate itself plus points and certain finance charges paid to obtain the loan, so APR is often higher than the stated rate.
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Related Topics & Key Terms
Key Terms:
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
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