Settlement Costs Included in Annual Percentage Rate
(APR)
July 11, 2002, Revised December 4, 2004, January 7, 2008,
Revised April 9, 2011
In principle, the mortgage APR should include all settlement costs that would not arise in an all-cash transaction. Unfortunately, the current definition violates this rule in a number of instances, with no rhyme or reason.
The columns below compare the treatment of various charges under the current APR rules, and as it would be under the principle stated above. A "yes" means the charge is included, a "no" means it isn't included, and a "?" indicates that treatment is not clear or depends on the circumstances.
Source: Adapted from Joint Report to the Congress on Consumer Disclosures Under TILA and RESPA, Federal Reserve Board and Department of Housing and Urban Development, July, 1998, Appendix C.
*These charges all arise in a cash transaction except for escrows, which should not be included because they remain the property of the borrower.
**Per diem interest should not be included because it is not known until the closing date is finalized, and it complicates the calculation of the APR without affecting it materially.
In principle, the mortgage APR should include all settlement costs that would not arise in an all-cash transaction. Unfortunately, the current definition violates this rule in a number of instances, with no rhyme or reason.
The columns below compare the treatment of various charges under the current APR rules, and as it would be under the principle stated above. A "yes" means the charge is included, a "no" means it isn't included, and a "?" indicates that treatment is not clear or depends on the circumstances.
| Type of Charge | Current | Proper |
| Loan origination fee | Yes | Yes |
| Loan discount, "points" | Yes | Yes |
| Mortgage broker fee | Yes | Yes |
| Tax/flood service (life of loan) | Yes | Yes |
| Assumption fee | Yes | Yes |
| Required credit life or disability insurance | Yes | Yes |
| Mortgage insurance premiums | Yes | Yes |
| Lock/commitment fee | Yes | Yes |
| Application fee | Yes | Yes |
| Lender's attorney fee | Yes | Yes |
| Settlement or closing fee | Yes | Yes |
| Credit report | No | Yes |
| Appraisal/survey | No | Yes |
| Lender's inspection fee | No | Yes |
| Pest inspection | No | Yes |
| Tax/flood certification | No | Yes |
| Loan document preparation | Yes | Yes |
| Abstract or title search/title examination | No | Yes |
| Title insurance, lender coverage | No | Yes |
| Notary fee (for mortgage) | No | Yes |
| Recording fee for mortgage | No | Yes |
| Deed preparation, real estate commission, transfer tax, hazard insurance, escrows, borrower coverage on title insurance, tax stamps (state, city, county)* | No | No |
| Per diem interest** | Yes | No |
Source: Adapted from Joint Report to the Congress on Consumer Disclosures Under TILA and RESPA, Federal Reserve Board and Department of Housing and Urban Development, July, 1998, Appendix C.
*These charges all arise in a cash transaction except for escrows, which should not be included because they remain the property of the borrower.
**Per diem interest should not be included because it is not known until the closing date is finalized, and it complicates the calculation of the APR without affecting it materially.