Settlement Costs Included in Annual Percentage Rate

July 11, 2002, Revised December 4, 2004, January 7, 2008

In principle, the 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
Lender's attorney fee	?	Yes
Settlement or closing fee	?	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	No	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.