What is a finance charge?

What is a finance charge?

• A. The total amount of interest and loan charges you would pay over the entire life of the mortgage loan.
• B. The annual percentage rate only.
• C. The down payment required.
• D. The closing costs only.

Answer: (A)

A finance charge is the total dollar cost of borrowing money. It includes the interest you’ll pay plus other loan charges that the lender imposes as part of obtaining credit, such as points and origination fees, and certain closing costs. That’s why describing it as the total amount of interest and loan charges you would pay over the life of the mortgage best captures what you’re paying to obtain the loan in dollars. The annual percentage rate is a percentage, not a dollar amount, so it’s a different concept. The down payment is the upfront cash you contribute, not a charge from the lender. Closing costs are fees at closing, and while some may be included in the finance charge, the finance charge itself is the total dollar amount of interest and charges to obtain the loan, not just closing costs.

A finance charge is the total dollar cost of borrowing money. It includes the interest you’ll pay plus other loan charges that the lender imposes as part of obtaining credit, such as points and origination fees, and certain closing costs. That’s why describing it as the total amount of interest and loan charges you would pay over the life of the mortgage best captures what you’re paying to obtain the loan in dollars.

The annual percentage rate is a percentage, not a dollar amount, so it’s a different concept. The down payment is the upfront cash you contribute, not a charge from the lender. Closing costs are fees at closing, and while some may be included in the finance charge, the finance charge itself is the total dollar amount of interest and charges to obtain the loan, not just closing costs.