Truth-in-Lending

The Federal Truth-in-Lending Disclosure is a federally mandated disclosure required with every loan application before the actual loan period begins.  Its primary function is to disclose the annual Percentage Rate, finance charges, amount being financed, total payments being made and lastly your sales price or your refinance loan amount.

At the top of your disclosure you should see your information, the lenders information, address, and date the disclosure was prepared.

Next, you will see the Annual Percentage rate.  The most complicated thing about the Truth-In-Lending disclosure is the Annual Percentage Rate.  The Annual Percentage Rate is the cost of your entire loan with all associated finance charges, expressed as a yearly rate.  This rate will be different from your actual note rate being disclosed to you as the rate to lock in for you loan.  It will be higher and it will be the best indicator of what your annual mortgage rate for your new loan will be.

The next section shows the Finance Charge which can be quite intimidating at first glance.  Keep in mind this will be the amount of interest paid on the loan over the full term of the loan program.  The Velocity of money applies in this section, as it is the cost of money over time. 

Amount Financed is simply the loan amount for which you are applying.

Finally, the total of all payments will be your Finance Charge plus your amount financed.  It will be much higher than what people expect.  It is important to remember, as you look at that number, that it is the money borrowed over time.  Take a look at what homes sold for 30 years ago in comparison to what they are selling for today.   You can easily see that the value of money is much lower today, which makes the value of homes much higher.  Borrowers looking at a Truth-In-Lending type statement 30 years ago would have seen that total payment for around the same costs that homes are today. 

The Next section will provide your payments and beginning/ending dates for the loan.  These payments will only include Principle and Interest and will not include taxes, insurance, HOA, or Mortgage Insurance.  On an Adjustable Rate Mortgage option it will give you the number of payments before your rate adjusts and then the total remaining payments.  These remaining payments will not calculate the estimated change in your payment, due to an adjustment tied to the loan program.

Towards the bottom of the Truth-In Lending you will see the penalties associated with your loan for early payoff or payments received after the due date. 

The remaining items are normally left blank, but if you are interested in Credit Life or Disability then the feature will typically be offered by the lender after the loan closes.