Question

Larry's final Truth in Lending Statement indicated that the APR on his ARM would be 5%. In order for Larry to rescind the loan a year later, the true APR would have to be at least:

A. 4.50%
B. 5.00%
C. 5.50%
D. 6.00%

Answer 1

Larry would likely need the true APR to be at least 5.25% or more to rescind the loan a year later according to TILA, making the closest answer C. 5.50%. Exact thresholds may vary with current regulations.

Step-by-step explanation:

The question pertains to consumer rights within the realm of finance, specifically regarding the Truth in Lending Act (TILA) and how it relates to Adjustable Rate Mortgages (ARMs). Larry's final Truth in Lending Statement indicated an APR of 5%. In general, for a borrower to have the right to rescind a loan a year later, there would have to be a significant discrepancy between the disclosed APR and the true APR. According to TILA, the discrepancy must be more than .25% for a refinancing with a new creditor and more than .125% for a refinancing with the existing creditor (not including a mortgage transaction for purchase or initial construction of a dwelling). Therefore, given that the disclosed APR is 5%, the true APR would need to be at least 5.25% or possibly more, depending on the specifics of the current regulations. The answer that most closely aligns with this understanding would likely be C. 5.50%, though students should verify the current tolerance thresholds as they can change with regulations updates.