According to the Truth-in-Lending-Act (TILA) lenders must provide borrowers with an APR in addition to the interest rate to be charged on the loan.
a. What is the purpose of providing borrowers with an APR? Briefly explain.
b. What is the main problem with APR? Briefly explain.
c. Consider a potential borrower who evaluates two mortgages options. One with higher upfront fees and the other with lower upfront fees, but the two options have the same APR. Which option would you advise the borrower to take if the borrower expects to stay in the home for a relatively short time period? Briefly explain.