Annual Percentage Rate Law and Legal Definition

Annual percentage rate (APR)is theannual cost of credit expressed as a percentage. The Federal Truth and Lending Law requires lenders to disclose the true annual interest on consumer sales, as well as the total dollar cost and other terms of a loan. It is commonly used to compare loan programs from different lenders.

The following fees are generally included in the APR:

  • Points - both discount points and origination points
  • Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
  • Loan-processing fee
  • Underwriting fee
  • Document-preparation fee
  • Private mortgage-insurance

The following fees may be included in the APR:

  • Loan-application fee
  • Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)

The following fees are normally not included in the APR:

  • Title or abstract fee
  • Escrow fee
  • Attorney fee
  • Notary fee
  • Document preparation (charged by the closing agent)
  • Home-inspection fees
  • Recording fee
  • Transfer taxes
  • Credit report
  • Appraisal fee