According to TILA, what margin of error is permitted for the annual percentage rate in a regular fixed-rate mortgage transaction?

Under the Truth in Lending Act (TILA), the permitted margin of error for the annual percentage rate (APR) in a regular fixed-rate mortgage transaction is one eighth of 1%, or 0.125%. This allows for a small degree of accuracy variance in the APR, which is important because it reflects the cost of borrowing and helps consumers compare different mortgage offers effectively.

This margin is set to accommodate slight discrepancies that may arise during the calculation of the APR, but it still ensures that lenders provide accurate and transparent information to borrowers. Thus, much like how precision is essential in providing financial product details to consumers, this allowance strives to bolster consumer protection by ensuring that the disclosed APR stays reasonably close to what the actual cost of borrowing may be.

Other options, such as one quarter of 1% or higher margins, exceed the limitations outlined by TILA and would not be compliant with its regulations. Having a tighter margin, like one eighth of 1%, is fundamental in helping maintain fair lending practices and ensuring that borrowers are not misled by inflated percentages that do not accurately reflect the low variation allowed by law.