Truth In Lending Questions
ANSWERS TO THE MOST FREQUENTLY ASKED TRUTH IN LENDING QUESTIONS
1. What is a Truth In Lending Disclosure and why do I receive it?
Your creditor is required by federal law to provide the information on this disclosure. 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.
2. What is the Annual Percentage Rate (APR) and why is it different from the initial interest rate on my loan?
The APR is the cost of your credit expressed as an annual rate, and can be compared to the APR on other loan programs to give you a consistent means of comparing rates and programs. The APR is computed from the Amount Financed and is 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 Finance 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 (12.533%) is higher than the 12% interest rate.
3. What is the Finance Charge?
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.
4. What is the Amount Financed?
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. However, if your loan is approved in the amount requested, you will receive credit for the full amount for which you applied. In this example, you would receive a $50,000, not a $48,000, loan.
5. What is the Total of Payments?
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.
6. What if my Disclosure states that I will not be entitled to a refund of part of the finance charge? What does this mean?
This 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 already been paid.
