Truth-in-Lending FAQs

What is the Truth-in-Lending Disclosure and why do loan customers receive it?

This disclosure is provided so that you can understand the costs of your loan and can compare them to paying cash or to other loan programs. In order for you to do that more easily, the government mandates that lenders disclose certain costs and terms.

What is the Annual Percentage Rate (APR)?

A term used in the Truth-in-Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan. The APR reflects the cost of your mortgage loan as a yearly rate.

What is the Finance Charge?

It is the total amount of interest you will pay over the life of the loan for the credit extended. It includes total amounts paid for the following: interest, prepaid finance charges and any required mortgage insurance (does not include hazard insurance).

What is the Amount Financed?

It is the loan amount applied for MINUS the prepaid finance charges (items paid at or before settlement, such as: loan origination, commitment or discount fees (points), adjusted interest and the initial mortgage insurance premium. The Amount Financed is LOWER than the amount applied for, because it represents a “net” figure. For example, if $50,000 was applied for, and the prepaid finance charges total $2,000, the Amount Financed would be $48,000.

Does the Amount Financed figure mean I will get a smaller loan than applied for?

If the loan is approved for the amount requested, you will receive credit toward your home purchase or refinance for the full amount for which you applied. Using the example in the previous question, you would receive a loan in the amount of $50,000.

What is the Total of Payments?

It represents the total amount you will have paid if you make the minimum required monthly payments for the entire term of the loan. This figure includes principal, interest and mortgage insurance premiums – it does NOT include payments for real estate taxes or property insurance premiums.

The disclosure states that if the loan is paid off early, I will not be entitled to a refund of part of the finance charge – what does this mean?

It means you will be charged interest for the period of time during which you used the money loaned to you. Prepaid Finance Charges are generally not refundable, nor is any interest you have paid.