A buyer is comparing mortgage disclosures to judge the true cost of borrowing. All of the following statements about the annual percentage rate are accurate EXCEPT:
Correct Answer
D) APR measures only the note interest rate and ignores points and prepaid finance charges
The annual percentage rate is the cost of credit expressed as a yearly rate, and it is built from the interest rate plus the prepaid finance charges the borrower pays to get the loan, such as discount points and certain origination and lender fees. Because those charges are folded in, the APR normally exceeds the note rate on a loan with points. A statement that the APR reflects the note rate alone therefore misdescribes the figure and is the inaccurate one.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
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