APR disclosures may vary by how much for fixed-rate and ARMs respectively?

APR disclosures may vary by how much for fixed-rate and ARMs respectively?

• A. 0.125% for fixed; 0.25% for ARMs
• B. 0.25% for fixed; 0.125% for ARMs
• C. 0.5% for both
• D. No variance allowed

Answer: (A)

The main rule here is about how accurately APR disclosures must reflect the true cost of credit. Under Truth in Lending (Reg Z), the disclosed APR may deviate from the actual APR by a limited amount depending on the loan type. For fixed-rate loans, the tolerance is smaller, while for adjustable-rate mortgages (ARMs) the tolerance is larger because the rate can change over time and introduces more variability in the cost. Therefore, the allowed variances are 0.125% (1/8 of a percent) for fixed-rate loans and 0.25% (1/4 of a percent) for ARMs. This means the stated APR can differ from the true APR by up to those amounts and still be considered compliant. The option reflecting these separate tolerances is the correct one, while other choices either misstate the tolerances or claim no variance is allowed.

The main rule here is about how accurately APR disclosures must reflect the true cost of credit. Under Truth in Lending (Reg Z), the disclosed APR may deviate from the actual APR by a limited amount depending on the loan type. For fixed-rate loans, the tolerance is smaller, while for adjustable-rate mortgages (ARMs) the tolerance is larger because the rate can change over time and introduces more variability in the cost.

Therefore, the allowed variances are 0.125% (1/8 of a percent) for fixed-rate loans and 0.25% (1/4 of a percent) for ARMs. This means the stated APR can differ from the true APR by up to those amounts and still be considered compliant. The option reflecting these separate tolerances is the correct one, while other choices either misstate the tolerances or claim no variance is allowed.