What is the connection between the Truth-in-Lending Act and the annual percentage rate (APR)?
Truth-in-Lending Act – the lender must disclose to the borrower the annual percentage rate being charged on the loan. The APR reflects origination fees and discount points and treats them as additional income or yield to the lender regardless of what costs the fees are intended to cover • Does the annual percentage rate always equal the effective borrowing cost? The annual percentage rate under truth-in-lending requirements never takes into account early repayment of loans. The APR calculation takes into account origination fees, but always assumes the loan is paid off at maturity • What is meant by a real rate of interest? A real rate of interest is an interest rate expressed in terms of real goods and is equal to the nominal rate less the expected rate of inflation • What is a risk premium in the context of mortgage lending? A reason for loan discount fees is that lenders believe that they can better price the loan to the risk they take. The risk for some individual borrowers is slig
