Mortgage Loan Originator (MLO) Licensing Practice Test

Which of the following is NOT a component represented in the calculation of APR?

1. Processing fees

2. Title fees

3. Discount points

4. Underwriting fees

The correct answer is: Title fees

The annual percentage rate (APR) is a critical component in understanding the true cost of borrowing, as it encompasses not just the interest rate on a loan, but also additional costs associated with obtaining that loan. When calculating APR, various fees and charges that borrowers might incur are included to provide a comprehensive view of the cost of borrowing. Processing fees, discount points, and underwriting fees are directly related to the loan's origination costs and thus are included in the APR calculation. Processing fees cover the administrative costs involved in negotiating and underwriting the loan. Discount points, which allow borrowers to pay upfront to reduce the interest rate, are also included as they represent a cost associated with obtaining the loan. Underwriting fees, which are charged for verifying and evaluating the loan application, similarly factor into the APR, reflecting the total cost of the loan beyond just the interest rate. On the other hand, title fees are generally considered separate from the costs associated with the loan itself. Title fees, which are linked to the real estate closing process, cover the title search and insurance, ensuring that the property title is clear of liens and claims. Since these fees are not directly related to the financing of the mortgage and do not represent the cost of borrowing the funds, they are not