Which fee would not be considered a finance charge and would not be part of the APR calculation?

Actual costs not retained by lenders (title fees, legal fees, closing costs, property taxes, appraisal fees, recording fees, notary fees, etc.) are not considered finance charges and are not included in the APR.

What is a prepayment penalty on a loan?

A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. If you have a prepayment penalty, you would have agreed to this when you closed on your home. Not all mortgages have a prepayment penalty.

How can I avoid a prepayment penalty on my mortgage?

Lastly, if you want to avoid prepayment penalties, you could just wait until prepayment penalties have phased out before paying off or refinancing your loan. Or, you can make allowable extra payments that are under the limit for how much of your mortgage you can pay back each year without triggering early payoff fees.

What is a prepayment clause in a mortgage?

What Is A Prepayment Penalty? A mortgage prepayment penalty is a fee that some lenders charge when you pay all or part of your mortgage loan off early. The penalty fee is an incentive for borrowers to pay back their principal slowly over a longer term, allowing mortgage lenders to collect interest.

What fees are excluded from the finance charge?

Charges Excluded from Finance Charge: 1) application fees charged to all applicants, regardless of credit approval; 2) charges for late payments, exceeding credit limits, or for delinquency or default; 3) fees charged for participation in a credit plan; 4) seller’s points; 5) real estate-related fees: a) title …

What is not considered a finance charge?

Charges imposed uniformly in cash and credit transactions are not finance charges. In determining whether an item is a finance charge, the creditor should compare the credit transaction in question with a similar cash transaction.

Is it legal for a lender to charge a prepayment penalty?

Federal law prohibits some mortgages from having prepayment penalties, which are charges for paying off the loan early. For many new mortgages, the lender cannot charge a prepayment penalty—a charge for paying off your mortgage early.

Why do lenders have prepayment penalties?

Prepayment penalties are written into mortgage contracts by lenders to compensate for prepayment risk, particularly in difficult economic climates and under circumstances where the incentive for a borrower to refinance a subprime mortgage is high.

How does a prepayment penalty work?

A prepayment penalty is a fee that lenders can charge when you pay your loan off early. Some loans, such as 30-year mortgages or four-year auto loans, have an expected payoff date. If you pay off the debt before then and your loan has a prepayment penalty clause, you may have to pay an additional fee.

What is included in finance charge?

A finance charge is the total amount of interest and loan charges you would pay over the entire life of the mortgage loan. This assumes that you keep the loan through the full term until it matures (when the last payment needs to be paid) and includes all pre-paid loan charges.

Why are prepaid finance charges subtracted from loan amount?

The “prepaid fees” that reduce the loan amount on the Truth in Lending disclosure are amounts of money the lender will receive when the loan closes. As a result, the loan amount shown on the form is the net amount the lender will actually provide for you to end up with the loan size you need to buy the home.

What is considered a finance charge?

A finance charge is the total amount of interest and loan charges you would pay over the entire life of the mortgage loan. This assumes that you keep the loan through the full term until it matures (when the last payment needs to be paid) and includes all pre-paid loan charges. Loan charges include: Origination charges.