When discussing the APR, which of the following is true?

When discussing the APR, which of the following is true?

• A. It represents only the interest portion of a mortgage
• B. It includes various fees and charges
• C. It is not required in loan disclosures
• D. It must always be less than the interest rate

Answer: (B)

The annual percentage rate (APR) is a comprehensive measure of the cost of borrowing expressed as a yearly interest rate. It includes not just the nominal interest rate on the loan, but also various fees and charges associated with the mortgage, such as origination fees, closing costs, and any prepaid interest. This holistic view allows borrowers to better understand the true cost of a loan over its term, making it easier to compare different loan offers. In the context of the other options, the interest portion alone does not provide a full picture of borrowing costs, which is why that statement is not accurate. The requirement for disclosure of APR is mandated by law, hence it cannot be true that it is not required in loan disclosures. Lastly, while APR generally reflects the total cost of borrowing and may sometimes be higher than the nominal interest rate due to the inclusion of additional costs, it is not a requirement for APR to always be less than the interest rate. Therefore, the assertion that APR includes various fees and charges captures its essence and purpose in lending.

The annual percentage rate (APR) is a comprehensive measure of the cost of borrowing expressed as a yearly interest rate. It includes not just the nominal interest rate on the loan, but also various fees and charges associated with the mortgage, such as origination fees, closing costs, and any prepaid interest. This holistic view allows borrowers to better understand the true cost of a loan over its term, making it easier to compare different loan offers.

In the context of the other options, the interest portion alone does not provide a full picture of borrowing costs, which is why that statement is not accurate. The requirement for disclosure of APR is mandated by law, hence it cannot be true that it is not required in loan disclosures. Lastly, while APR generally reflects the total cost of borrowing and may sometimes be higher than the nominal interest rate due to the inclusion of additional costs, it is not a requirement for APR to always be less than the interest rate. Therefore, the assertion that APR includes various fees and charges captures its essence and purpose in lending.