The Truth in Lending Act, which requires
creditors to disclose in writing certain cost information, such as
the annual percentage rate (APR), before consumers enter into credit
transactions.
ANNUAL
PERCENTAGE RATE
The cost
of your credit at a yearly rate

FINANCE
CHARGE
The dollar
amount the credit will cost you

AMOUNT
FINANCED
The amount
of credit provided to you or on your behalf

TOTAL
OF PAYMENTS
The amount
you will have paid after you have made all payments as scheduled

A
%

$
B

$
C

$
D

Q. What is TruthInLending 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 is 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.