The truth in lending disclosure statement provides all the information about the cost of your loan. The key features that it describes include:
- Annual Percentage Rate – this is the cost of your credit shown as a percentage. It is the best way to see how expensive a loan will be. If the APR is much higher than the interest rate on the loan, that is considered paying high fees.
- Finance Charge – this is the dollar amount of most of the charges plus all the interest that will be paid if the loan amounts are paid on time. This number assumes the loan will be paid on a perfect schedule, so the amount may be higher or lower depending on if the loan amount is paid off earlier or later.
- Amount Financed – this is the full dollar amout of the loan, called the principal, minus most of the charges being paid out of loan proceeds. This number is intended to show how much is actually received in cash and benefits. Compare the amount financed to the principal of the loan and if the principal is much higher than the amount financed, you are paying or will pay high fees.
- Payment Schedule – this shows the dates and dollar amounts that are due along with the date and amount of the first and last payments.
- Total of Payments – this is the amount of money that will be paid at the end of the loan term if every payment is made on time until the end
- Credit Insurance – this is usually an optional product and may include credit life or credit disability insurance. If you wish to purchase this, separate papers must be filed. Lenders often profit from the sale of this insurance.
- Late Charge – this tells how many days after the due date a payment is considered late and how much money will be paid in penalties.
- Prepayment Charge – This shows whether a penalty will have to be paid if the loan is paid off before it is due. This can be very expensive and is a very important piece of information if you plan to pay off the loan early or if you plan on refinancing if interest rates decrease in the future.
Here are a few tips:
- if the lender does not provide a truth in lending disclosure statement when you first apply for a loan, ask for it. This estimate will help you understnad the terms of the loan.
- When you are asked to sign or initial documents, READ EVERYTHING FULLY or you may find out that you have purchased credit insurance that you do not want.
- You will receive an initial estimated TILA and a final one before mortgage documents are signed. Never sign anything until you have received and fully read the final disclosure.
- Your final TILA may be different from the estimated disclosure. Be sure to compare the final disclosure with the estimated one. If the terms have changed and you do not like them, DON’T SIGN the mortgage documents.
Processing a mortgage is a confusing and sometimes painful process. If you have any questions or would like someone to review the terms of the loan with you, consult a real estate attorney.