Mortgage Loan Originator (MLO) Licensing Practice Test

Which of the following is excluded from calculating APR?

1. Discount points

2. Underwriting fees

3. Title fees

4. Processing fees

The correct answer is: Title fees

Calculating the Annual Percentage Rate (APR) involves considering various costs associated with obtaining a mortgage loan, which helps borrowers understand the true cost of borrowing. Discount points, underwriting fees, and processing fees are all directly related to obtaining the loan and are included in the APR calculation. However, title fees are considered a third-party expense and do not directly relate to the loan's interest cost or the lender's price for the loan. Title fees are typically associated with the title search and issuance of title insurance, which protect against potential ownership issues. As a result, these fees are excluded from the APR calculation since they do not reflect the cost of obtaining financing but rather the cost of ensuring clear ownership of the property. Understanding this distinction is crucial for borrowers as they assess the total costs of their mortgage options.