What must be included when calculating the finance charge disclosures?

When calculating the finance charge disclosures under the Truth in Lending Act (Regulation Z), it is essential to include the points paid by the borrower. Points are upfront fees that the borrower pays to the lender in exchange for a lower interest rate or as a part of the loan agreement. They are considered a form of interest and are therefore included in the finance charge calculation, which serves to inform borrowers about the true cost of credit.

Including points in the finance charge is crucial for providing a clear and comprehensive understanding of the total cost of borrowing. This transparency allows borrowers to better compare different credit offers and make informed decisions regarding their loans.

In contrast, while prepaid insurance expenses, costs related to loan servicing, and third-party service fees may be associated with the overall transaction, they do not qualify as finance charges under Regulation Z. They might be part of the closing costs or other fees involved in the loan process but are not included in the calculation of the finance charge itself, which focuses specifically on interest and associated costs like points.