What may be included in a finance charge?

A finance charge encompasses the total cost of borrowing and is not limited to just one component. It typically includes interest, as well as any service charges and other related fees that a borrower may incur in relation to the loan. This means that when calculating the finance charge, various costs associated with facilitating the loan are considered.

For example, if a borrower is charged an application fee, an underwriting fee, or any other service charge in addition to the interest on the principal amount borrowed, these would all be included in the finance charge. This comprehensive approach ensures that borrowers understand the full cost of the loan they are taking out.

It is important to note that certain costs, like insurance premiums or property taxes, typically do not form part of the finance charge under federal regulations. Such distinctions help clarify what constitutes a finance charge and provide transparency to borrowers about the costs associated with mortgage loans.