Truth in Lending
Q. What is the Truth-in-Lending Disclosure and why do I receive it?
A. The disclosure is designed to give you information about the costs of your loan so that you can compare these costs with those of another of another loan program or lenders.
Q. What is the ANNUAL PERCENTAGE RATE?
A. The Annual Percentage Rate (A.P.R.) is the cost of your credit expressed as an annual rate. Because you may be paying loan discount “points” and other “prepaid” finance charge at closing, the A.P.R. disclosed is often higher that the interest rate on your loan. This A.P.R. can be compared to the A.P.R. on other loan programs to give you a consistent means of comparing rates and programs.
Q. Why is the ANNUAL PERCENTAGE RATE different from the interest rate for which I applied for?
A. The A.P.R. is computed from the Amount Financed and is based on what your proposed payments will be on the actual loan amount credited to you at settlement. In a $50,000 loan with $2,000 Prepaid Finance Charges, a 30 year term and a fixed rate of 12%, the payments would be $514.31 (principal and interest). Since the A.P.R. is based on the Amount Financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the A.P.R. (12.553%) is higher than the interest rate.
Q. What is the FINANCE CHARGE?
A. 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.
Q. What is the AMOUNT FINANCED?
A. The Amount Financed is the loan amount applied for, minus the Prepaid Finance Charges. Prepaid Finance Charges include items paid at or before settlement, such as loan origination, commitment or discount fees (“points”), adjusted interest, and initial mortgage insurance premium. The amount financed is lower than the amount you applied for because it represents a NET figure. If you applied for $50,000 and the Prepaid Finance Charge totals $2,000, the Amount Financed would be $48,000.
Q. Does this mean I will get a smaller loan than I applied for?
A. No. If your loan is approved in the amount you requested, you will receive credit toward your home purchase or refinance for the full amount for which you applied. In the example above, you would therefore receive a $50,000, not a $48,000 loan.
Q. What is the TOTAL OF PAYMENTS?
A. This figure represents the total amount you will have paid if you make the minimum required payments for the entire term of the loan. This includes principal, interest, and the mortgage insurance premiums, but does not include payments for real estate taxes or property insurance premiums. This estimate on the Disclosure Statement and is estimated in any adjustable rate transaction.
Q. My Disclosure says that if I pay the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean?
A. This means that you will be charged interest for the period of time in which you used the money loaned to you. Your prepaid finance charges are generally not refundable, nor is any interest which has already been paid. If you pay the loan off early, you should not have to pay the full amount of the “Finance Charges” shown on the disclosure.
Q. What is the filing fee?
A. The Filing Fee is an estimate of the cost of recording the legal documents (mortgage, deed of trust, deed, etc.) connected with your transaction. The fee will be charged at settlement; please do not send it now.
