Truth in Lending
The Truth in Lending document is designed to allow borrowers to see the costs of a loan over the life of the loan. It contains several sections. The most prominent section is located near the top of the first page and contains several boxes.
Each box contains information related to the loan. These include:
* Annual Percentage Rate - See Below
* Finance Charge - Total of all interest paid over the life of the loan.
* Amount Financed - The amount of the original loan less any "prepaid items."
* Total Payments - Total of all interest and principal payments over the life of the loan.
Directly under the boxes listed is a section called "Payment Schedule." This list the number of payment, and amount of each payment.
For instance, this section will state 239 payments at $1,100.21 dollars. and 1 payment at $1,079.14.
If the client is required to pay Mortgage Insurance (MIP) this will be included in the payment schedule.
The bottom half of the page contains the following boxes:
# Demand Feature. Is there a demand feature on the loan.
# Variable Rate Feature. Is the loan variable interest rate of fixed rate.
# Security. What property is being used to secure the note for the lender.
# Assumption. Cant the loan be assumed by another borrower without having to qualify for the loan.
# Filing or recording fees. What are the fees being charged by the government to file the loan documents at the courthouse.
# Property Insurance. Is property insurance being required by the lender and can it be purchased through the lender.
# Late Charges. How many days after the due date will the payment be considered late by the lender. This is commonly referred to as the "grace period." This is usually 15 days.
# Prepayment Penalty. Will the borrower have to pay a penalty to the lender for paying off the loan early.
Annual Percentage Rate (APR)
By far the question you will get the most on the Truth in Lending is about the Annual Percentage Rate or APR.
This is because the APR rate will more than likely exceed the rate agreed upon by the borrowers and the lender. This is normal.
The APR rate includes the prorated costs of certain finance charges. These charges can include:
* Loan Discount points
* Origination Fees
* prepaid interest
These costs are prorated over the life of the loan and therefore appear to increase the interest rate.
My suggestion is to download this form and read it until it becomes second nature. I can almost assure you this will be the document that requires most of your attention at closing.
This was the document that took me the longest to understand completely. I used to tell people that there is no truth in the truth in lending. But once you get the hang of it, no problem. You will be able to explain it without much trouble and very quickly.
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