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Frequently Asked Questions (FAQs)

Federal and State Disclosures

Loan Programs

UP2 The Truth in Lending Statement

A mortgage lender (all creditors, in fact) are required to deliver a Truth-in-Lending disclosure to a loan application within three business days of receiving an applicaton.

The purpose of this form, promulgated by the federal government, is to standardize the way loan features are presented to loan applicants. Although legislators and regulators had the applicant’s best intentions in mind when they created the form, in reality, most consumer have no clue what the contents of the form mean.  So here’s a brief explanation of how to interpret the primary contents of the Truth-in-Lending disclosure (TIL disclosure).

The disclosure contains lots of information about the proposed loan characteristics but the most important items of content are contained in the boxes at the top of the form. The intent of putting these four items in large boxes is to emphasize these elements and make it easy to locate them on the form.  All TIL disclosures will contains these types of boxes.

Annual Percentage Rate (APR) - This is the cost of your credit expressed as an annual rate. This is not the same as the interest rate. The APR is a term created by the regulators that takes into account the items you pay up front to obtain financing such as origination fees and discount points (pre-paid finance charges) and interest you pay over the life of the loan (finance charges). For more an entire dissertation on APR and the problems associated with using it to “shop” for a loan please refer to our guide About Annual Percentage Rate (APR).

Finance Charge - This is the dollar amount you will pay for both interest and certain pre-paid fees. Regulation Z (which clarifies and enforces the federal Truth-in-Lending Act) sets forth which charges are considered to be finance charges (which are, in turn, used to determine APR). Read more about finance charges in that same guide About APR.

Amount Financed - Basically, this is the amount of the loan, less the pre-paid finance charges.  It is used to compute APR.  This about it.  If you borrow $100,000, but the lender takes a fee of $1,000 out and that fee goes into the lender’s pocket, the true amount you borrowed is $99,000.  That’s the Amount Financed.  It’s the “net” amount you received after those pre-paid finance charges were taken from the proceeds.

Total of Payments - The scariest bit of information on a mortgage loan. This figure tells you what you will have paid the lender at the end of the loan. It represents the loan amount, plus fees, finance charges and interest.  But take heart, it is a rare occurrence that mortgage loan is paid to maturity so the amount that is actually paid will typically be much less.

Comparing these four components of a Truth-in-Lending disclosure provides you with the basic loan costs. But beware. Because the pre-paid finance charges can be manipulated and because the computation of APR assumes that you will pay the loan to maturity (which rarely happens with a mortgage loan) the APR shown on the TIL disclosure is poor method of comparing loans from various lenders.

This is an example Truth in Lending Statement.

Truth in Lending Statement