All lenders are required by the Real Estate Settlement and Procedures Act (RESPA) to show the rate which will be charged on the note signed at closing, including the total cost to obtain the loan.

This includes, but is not limited to, the total interest paid over the life of the loan, assuming the full term is carried out at the note rate, plus certain closing costs. Closing costs could include prepaid interest, Private Mortgage Insurance/FHA Mortgage Insurance Premium or VA Funding Fee, whichever may be applicable, and various miscellaneous costs such as an underwriting fee, tax service fee, etc., as may be charged by the lender.

All of these finance charges are taken into consideration when calculating the APR to give a more accurate picture of the total cost of the loan.