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Answers to The Most Frequently Asked Truth-In-Lending Questions |
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Q.
What is 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 may compare these costs with those of other loan
programs or lenders. Q. What
is the ANNUAL PERCENTAGE RATE? (Box “A” Above) A. The
Annual Percentage Rate (APR) is the cost of your credit expressed as an
annual rate. Because
you may be paying loan discount ‘points’ and other ‘prepaid’
finance charges at closing, the APR disclosed s often higher than the
interest rate on your loan. This
APR can be compared to the APR 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? A. The
APR is computed from the Amount Financed and 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 Interest Charges, a 30 year term, and a fixed
interest rate of 12%, the payments would be $514.31 (principal and
interest). Since the APR is based on the Amount Financed ($48,000),
while the payment is based on the actual loan amount given ($50,000),
the APR (12.553%) is higher than the interest rate. Q. What
is the FINANCE CHARGE? (Box ‘B’ Above) 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? (Box ‘C’ Above) 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 Charges total
$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 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? (Box ‘D’ Above) 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 mortgage insurance
premiums, but does not include payments for real estate taxes or
property insurance premiums. 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. The 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 been already paid. |
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