According to the Truth-in-Lending Act (TILA), which of the following fees is EXCLUDED from the calculation of the annual percentage rate?

According to the Truth-in-Lending Act (TILA), which of the following fees is EXCLUDED from the calculation of the annual percentage rate?

• A. Hazard insurance
• B. Mortgage insurance premiums
• C. Wire transfer
• D. Prepaid interest

Answer: (A)

Hazard insurance is excluded from the APR calculation because it is a cost for protecting the property (collateral) rather than a charge tied to obtaining or using credit. The Truth in Lending Act’s finance charge includes interest, points, origination fees, and other costs directly associated with obtaining the loan, but insurance premiums for protecting the collateral fall outside that category. So while you must pay hazard insurance, that payment does not inflate the annual percentage rate. (Other charges like mortgage insurance premiums or prepaid interest are typically included in the finance charge, while some fees such as certain processing charges or wire transfers can vary by situation and are not universally excluded the way hazard insurance is.)

Hazard insurance is excluded from the APR calculation because it is a cost for protecting the property (collateral) rather than a charge tied to obtaining or using credit. The Truth in Lending Act’s finance charge includes interest, points, origination fees, and other costs directly associated with obtaining the loan, but insurance premiums for protecting the collateral fall outside that category. So while you must pay hazard insurance, that payment does not inflate the annual percentage rate. (Other charges like mortgage insurance premiums or prepaid interest are typically included in the finance charge, while some fees such as certain processing charges or wire transfers can vary by situation and are not universally excluded the way hazard insurance is.)