QUESTIONS AND
ANSWERS ABOUT FEDERAL TRUTH IN LENDING DISCLOSURES
|
The cost of your credit as a yearly rate.
A %
|
The dollar amount the credit will cost
you.
$
B | The amount of credit provided to you on
your behalf.
$ C
|
The amount you will have paid after you have made all
payments as scheduled.
$
D |
Federal law provides
that you receive a federal Truth in Lending Disclosure Statement before
consummating a consumer credit
transaction. It should be studied carefully as well as other information
given to you regarding the credit transaction.
Following are some of the most frequently asked questions
about the Truth in Lending Statement and their answers.
| WHAT IS A TRUTH IN
LENDING DISCLOSURE STATEMENT AND WHY DO I RECEIVE
IT? |
| Your Disclosure
Statement provides information set forth by federal law (Regulation Z,
RESPA). The Disclosure is designed to give you information about the
costs of your credit so that you may compare those costs with those of
other loan programs or lenders. |
| WHAT IS THE ANNUAL
PERCENTAGE RATE? (Box "A" above) |
| This should not be
confused with your note rate. The Annual Percentage Rate, or APR, is
the cost of your credit expressed as an annual rate. Because you may
be paying closing costs, also known as prepaid finance charges
(origination fee, discount points, mortgage insurance, interest), the APR
on the disclosure is often higher than the interest rate on your
loan. This APR can be compared to the APR of other loan programs to
give you a consistent means of comparing rates and
programs. |
| WHY IS THE ANNUAL
PERCENTAGE RATE DIFFERENT FROM THE INTEREST RATE FOR WHICH I
APPLIED? |
| The APR is computed
from the Amount Financed based on what your proposed payments will be on
the actual loan amount credited to you at the time the loan is closed. For
example, a $50,000 loan with $2,000 in Prepaid Finance Charges, a fixed
interest rate of 12%, and a 30 year term, the payments would be
$514.31(principal and interest only). Since the APR is based
on the Amount Financed, ($50,000 - $2,000 = $48,000) while the payment is
based on the actual loan amount ($50,000), the APR would be 12.553% which
is higher than the interest or note rate. |
| WHAT IS THE
FINANCE CHARGE? (Box "B" above) |
| 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? (Box "C" above) |
| This should not be
confused with your loan (mortgage) amount. The Amount Financed is
the amount of credit provided to you or on your behalf, MINUS
Prepaid Finance Charges. Prepaid Finance Charges include, but are not
limited to, items paid at or before the loan closing, such as loan
origination, commitment or discount fees (points), interest, and initial
mortgage insurance premium. The Amount Financed represents a NET
figure used to allow you to accurately assess the amount of credit
actually provided. The Amount Financed is lower than the amount you
applied for because it represents a NET figure. If someone applied
for a mortgage of $50,000 and their Prepaid Finance Charges total $2,000,
the Amount Financed would be shown as $48,000 ($50,000 minus
$2,000). |
| DOES THIS MEAN I
WILL GET A LOWER MORTGAGE THAN I APPLIED FOR? |
| No, if your loan is
approved for the amount you applied for, that's how much will be credited
toward your home purchase or refinance at closing. The mortgage note
will show the final amount you have borrowed. |
| WHAT IS THE TOTAL
OF PAYMENTS? (Box "D" above) |
| This figure
indicates 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 mortgage insurance premium (if required), but
does not include payments for real estate taxes or property insurance
premiums. |
| I DON'T UNDERSTAND
THE PAYMENT SCHEDULE. |
| The payments shown
in the disclosures represent principal, interest, and mortgage insurance
premium (if required). The payment schedule does not include
payments for real estate taxes or property insurance premiums. The
payments can vary for a number of reasons. If you have an Adjustable
Rate Mortgage for example, the payment schedule will show the payments due
on the loan based on any adjustments noted in your program
description. If you have mortgage insurance, the payments are
effected by prepaid mortgage insurance premiums.
|
| MY STATEMENT 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?
|
| 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. This charge represents an
estimate of the full amount the loan would cost you if the minimum
required payments were made each month through the life of the loan.
If you have mortgage insurance you may be entitled to a refund of any
unused portion of mortgage insurance paid at time the loan
closed. |
| WHY MUST I SIGN
THE DISCLOSURE STATEMENT? |
| Lenders are
required, by law, to provide the information on the statement to you in a
timely manner. Your signature merely indicates that you have
received the information and does not obligate either you or your lender
in any way unless the disclosures are part of the contractural
agreement. |
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