- A $280,000.00 loan at 6.750% has $2,800.00 points and $1,400.00 origination. What is the approximate APR impact direction?
Answer: APR will be higher than 6.750% due to prepaid finance charges
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, points and origination as prepaid finance charges raise APR above the note rate. Choice A is correct because it accurately applies TILA principles to predict APR direction. Choice B is incorrect due to a common misconception that points are not finance charges. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA.
- This advertisement complies with TILA advertising rules because it:
Answer: Does not state specific payment amounts that would trigger additional disclosures
This advertisement complies with TILA because it does not include specific payment amounts, down payments, or other triggering terms that would require comprehensive material term disclosures. Rate ranges alone do not trigger full disclosure requirements. Disclaimers and rate ranges are helpful but not the primary compliance factor. Directing consumers to call doesn't determine TILA compliance.
- A $225,000.00 loan at 6.875% has $4,500.00 prepaid finance charges. What APR is closest using financed amount $220,500.00?
Answer: About 7.030% reflecting prepaid finance charges
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, with $225,000 loan at 6.875% and $4,500 prepaid finance charges, amount financed $220,500 yields APR around 7.030%. Choice A is correct because it accurately applies TILA principles to calculate the APR. Choice B is incorrect due to a common misconception that APR equals note rate. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA.
- What is the total amount included in the finance charge for this loan?
Answer: $7,500 excluding appraisal fee
Finance charges include: origination fee (1% × $300,000 = $3,000), discount points (1.5% × $300,000 = $4,500), and processing fee ($500) = $7,500 total. The third-party appraisal fee ($400) is excluded from finance charges under TILA, even when required by the lender.
- Under TILA advertising rules, which statement about rate advertisements is accurate?
Answer: APR must be disclosed with equal prominence when interest rates are advertised
Under TILA Regulation Z, when interest rates are advertised, the corresponding APR must be disclosed with equal prominence, not greater prominence. Interest rates cannot be advertised without APR disclosure. Material loan term disclosure is required only when payment amounts or other triggering terms are advertised, not for simple rate advertisements.
- Which of the following fees is excluded from the finance charge under TILA?
Answer: Property survey fees required by lender
Under TILA, property survey fees are excluded from the finance charge even when required by the lender, as they are considered necessary transaction costs. Origination fees are always included in finance charges. Credit report fees are included when they exceed actual costs incurred by the lender. Appraisal fees are generally excluded from finance charges when paid to third parties.
- A mortgage ad includes "$2,000.00 closing costs" and "5.750% fixed." Which additional TILA trigger-term disclosure is required?
Answer: The APR and terms of repayment (e.g., 30-year, monthly payment)
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, the ad includes trigger terms like closing costs and rate, necessitating APR and repayment terms. Choice B is correct because it accurately applies TILA principles to identify required disclosures. Choice A is incorrect due to a common misconception that only lender details are needed, overlooking cost disclosures. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA.
- An adjustable-rate mortgage advertisement must include which disclosure under TILA advertising rules?
Answer: A statement that the rate may increase and the payment may vary
Under TILA advertising rules for ARMs, advertisements must include a statement that the rate may increase and payments may vary. The maximum rate disclosure is not required in advertising. Specific index and margin details are not required in advertising. Historical index performance is not required to be disclosed in ARM advertisements.
- Which scenario would require revision of the APR disclosed to the borrower under TILA?
Answer: The final APR exceeds the originally disclosed APR by 0.20 percentage points
Under TILA, APR disclosures must be revised if the final APR exceeds the tolerance of 0.125 percentage points (1/8%) for mortgage loans. A 0.20 percentage point increase exceeds this tolerance. A 0.10 percentage point increase is within tolerance. Credit score improvements benefiting the borrower don't require revision. Market fluctuations within tolerance don't trigger revision requirements.
- A refinance has $3,000.00 points, $1,200.00 underwriting, $600.00 credit report, $2,000.00 title. How should finance charge be treated?
Answer: Include points, underwriting, and credit report; title may be excluded if bona fide
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, points, underwriting, and credit report are finance charges, while title may be excluded if bona fide. Choice B is correct because it accurately applies TILA principles to classify fees. Choice C is incorrect due to a common misconception that only interest counts, ignoring other charges. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA. Review fee exclusion criteria in Reg Z.
- A creditor advertises "No closing costs" but charges $4,000.00 points. Under TILA, what must be true to keep the ad compliant?
Answer: Points must be clearly disclosed as prepaid finance charges, not hidden
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, advertising 'no closing costs' while charging points requires clear disclosure of points as finance charges. Choice A is correct because it accurately applies TILA principles to ad compliance. Choice B is incorrect due to a common misconception that borrower-paid fees can be omitted. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA.
- A Loan Estimate shows APR 7.100% on a 6.750% note rate with $0 points but $6,500.00 origination. What is most likely true?
Answer: APR is higher because origination is a prepaid finance charge
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, origination fees without points still increase APR above the note rate. Choice D is correct because it accurately applies TILA principles to APR interpretation. Choice C is incorrect due to a common misconception that APR equals note rate absent points. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA.
- Which advertising statement would violate TILA advertising rules?
Answer: '$1,500 monthly payment' without disclosing loan amount, down payment, and APR
Under TILA advertising rules, when payment amounts are advertised, all material terms must be disclosed including APR, loan amount, down payment, and repayment terms. Rate and APR with equal prominence is compliant. 'No closing costs' claims must be substantiated but aren't automatically violations. General statements about product availability don't trigger detailed disclosure requirements.
- Which fee is generally excluded from finance charge if bona fide and reasonable: $1,000.00 appraisal, $1,800.00 title insurance, $2,500.00 points?
Answer: Title insurance, because it is a settlement service charge often excluded
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, title insurance is generally excluded from finance charges if bona fide and reasonable. Choice B is correct because it accurately applies TILA principles to fee exclusions. Choice A is incorrect due to a common misconception that points are optional and excluded. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA. Discuss Reg Z exclusions for settlement fees.
- A buyer's Loan Estimate shows lender credit $2,000.00 and points $2,000.00. Under TILA, how does this affect APR?
Answer: APR may decrease because lender credits can offset prepaid finance charges
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, lender credits can offset points, potentially lowering the APR. Choice B is correct because it accurately applies TILA principles to APR effects. Choice A is incorrect due to a common misconception that credits are finance charges. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA.
- Under TILA disclosure rules, when must the APR be disclosed to the borrower?
Answer: At loan application, in the Loan Estimate, and in the Closing Disclosure
Under TILA and TRID rules, APR must be disclosed multiple times: in the Loan Estimate (within 3 business days of application), and again in the Closing Disclosure (at least 3 business days before consummation). APR disclosure is not limited to just one document or timing. Rate lock timing does not determine APR disclosure requirements.
- On a refinance, which fees count toward finance charge under TILA: $2,800.00 origination, $650.00 appraisal, $1,200.00 title, $900.00 escrow?
Answer: Origination counts; escrow deposit does not; appraisal/title depend on exclusions
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, fees like origination count as finance charges, while escrow deposits do not, and appraisal/title may be excluded if bona fide and reasonable. Choice C is correct because it accurately applies TILA principles to identify which fees qualify as finance charges. Choice A is incorrect due to a common misconception that certain third-party fees never count, ignoring TILA exclusions. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA. Encourage reviewing Reg Z for specific fee exclusions.
- For APR calculation purposes under TILA, discount points paid by the borrower are:
Answer: Included in finance charges because they are fees paid to obtain credit
Under TILA, discount points paid by the borrower are included in finance charges because they are fees paid to obtain the credit, regardless of being prepaid interest. They are not excluded simply because they represent prepaid interest. Payment to third parties doesn't exclude points from finance charges. There is no percentage threshold that determines inclusion in finance charges.
- A mortgage advertisement states 'No points, no fees!' To comply with TILA advertising rules, this claim:
Answer: Must be substantiated and may not be misleading about actual loan costs
Under TILA advertising rules, 'no points, no fees' claims must be substantiated and not misleading. If some costs are shifted to higher rates or other fees, the claim could be deceptive. Automatic compliance based on literal truth is insufficient if the overall impression is misleading. Disclosure of rate-embedded costs is good practice but not specifically required. Such claims are not automatically prohibited if properly substantiated.
- A refinance ad states "$0 down, 5.875% fixed, payment $1,850.00." Under TILA, what must also be shown prominently?
Answer: The APR and whether the payment includes taxes and insurance
This question tests the application of TILA disclosure rules in calculating and interpreting APR, finance charges, and advertising compliance. The APR represents the annual cost of a loan including fees, providing a broader measure than the interest rate alone. In this specific scenario, the ad uses trigger terms like payment and down, requiring APR and escrow details. Choice A is correct because it accurately applies TILA principles to required disclosures. Choice C is incorrect due to a common misconception that points alone suffice without APR. To help students: Emphasize the importance of distinguishing between APR and nominal rates, teach the breakdown of finance charges, and provide examples of compliant advertisements under TILA.
