Ace the Ontario Mortgage Agent Exam 2026 – Unlock Your Future in Finance!

The annual percentage rate (APR) is an important financial metric that reflects the true cost of borrowing by including interest and certain fees associated with the loan. However, some costs are excluded from the APR calculation to provide a clearer picture of the fundamental borrowing costs.

Penalties for prepaying the mortgage are not included in the APR calculation because they are not considered costs associated with obtaining the loan but rather relate to the terms of repayment. These penalties are contingent upon the borrower's actions after taking out the loan (specifically, paying it off early), and thus do not factor into the actual cost of borrowing or the financing of the mortgage itself. This exclusion allows borrowers to assess their loans based primarily on the interest and fees incurred at the outset and during the term, rather than potential future penalties that depend on individual financial behavior.

In contrast, costs such as appraisals, inspections, and surveys ordered by the borrower are typically included in the APR since they are direct costs incurred in the loan process. Charges for overdrafts and default insurance premiums for high-ratio mortgages are similarly accounted for in the APR as they represent necessary expenditures related to the loan agreement.