FAQ's regarding "Truth inLending" Disclosures
Below is a reference for
the most commonly asked questions pertaining to the "Truth
in Lending" disclosure statement.
What is the Truth in Lending Disclosure and why do borrowers receive
it?
The Disclosure is designed to give information about the costs
of their loan so they may compare these costs with those of other
lenders.
What is the ANNUAL PERCENTAGE RATE?
The annual percentage rate (APR) is the cost of your mortgage
expressed as an annual rate. Because you may be paying points
and other "prepaid" finance charges at closing, the
APR disclosed is often higher than the interest rate on your loan.
This APR can be compared to the APR on other loan programs to
give consumers a consistent means of comparing rates and programs.
Why is the ANNUAL PERCENTAGE RATE
different from the interest rate?
The APR is computed from the Amount Financed and is based on what
the proposed payments will be on the actual loan amount credited
to the to the Borrower at settlement. In a $150,000 loan with
$3,000 Prepaid Settlement Charges, 30 year term and a fixed interest
rate of 7.5% the payments would be $1,049.08 (principal and interest
only). Since the APR is based on the Amount Financed ($147,000)
while the payment is based on the amount given ($150,000) the
APR (7.710%) is higher than the Promissory Note.
What is the FINANCE CHARGE?
The finance charge is the cost of credit expressed in dollars.
It is the total amount of interest calculated at the interest
rate over the life of the loan, plus Prepaid Finance Charges and
the total amount of any required mortgage insurance charged over
the life of the loan.
What is the AMOUNT FINANCED?
The Amount Financed is the loan amount, minus the Prepaid Finance
Charges. Prepaid Finance Charges include items paid at or prior
to closing, such as loan origination fees, commitment fees ("points"),
prepaid interest, and initial mortgage insurance premiums, if
any. The Amount Financed is lower than the amount the Borrower
applied for because it represents a NET figure. If you applied
for $150,000 and the Prepaid Finance Charges total $3,000, the
Amount Financed would be $147,000.
Does this mean the Borrower will get a
smaller loan than he or she applied for?
No. IF the loan is approved for the amount requested, the Borrower
will receive credit toward their home purchase or refinance for
the full amount for which they applied. In the example above,
the Borrower would receive a $150,000 loan, not the $147,000 loan.
Accordingly, whenever there are prepaid finance charges the Loan
Amount is greater that the Amount Financed.
What is the TOTAL OF PAYMENTS?
This figure represents the total amount the Borrower will have
paid if they make the (minimum) required payments for the entire
term of the loan. This includes principal interest, and mortgage
insurance premiums, if any, but does not include payments for
real estate taxes or property insurance is applicable. This figure
is estimated on the Disclosure Statement and is estimated in any
adjustable rate transaction.
The TRUTH IN LENDING ACT (TILA) Disclosure says that if the
Borrower pays off the loan early, he or she will not be entitled
to a refund any part of the finance charge. What does this mean?
This means the Borrower will be charged interest for the period
of time in which they used the borrowed money. Prepaid finance
charges are generally not refundable, nor is any interest which
has already been paid. However, if the loan is paid off early
the Borrower will not pay the full amount of the Finance Charge
shown on the disclosure because they will only pay accrued interest
through the date of the payoff.
What is the filing Fee?
The Filing Fee is an estimate of the cost of recording the legal
documents (mortgage, deed, assignments, power of attorney, etc.,)
connected with the loan transaction. The filing fee is charged
at closing and is disclosed as the amount that will be paid to
the government agencies where the documents are recorded.
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