Truth-in-Lending Statement (TIL)
Questions and Answers about Truth in Lending (TIL)
Questions and Answers about Truth-In-Lending(TIL)
Federal law provides that you receive a "Truth-in-Lending Disclosure Statement (TIL)" within three days of your mortgage application. Following are some of the most frequently asked questions about the Truth-in-Lending Statement (TIL) and their answers.
Q. What is a Truth-in-Lending Disclosure Statement (TIL) and why do I receive it?
A. Your Disclosure Statement (TIL) provides information which Federal law requires to provide you within three days of your mortgage application. The purpose of the statement is to give you information about your loan and help you shop for credit.
Q. What is the Annual Percentage Rate A.P.R?
A. The Annual Percentage Rate or A.P.R., is the cost of your credit expressed in terms of an annual rate. Because you may be paying "points" and other closing costs, the A.P.R. disclosed is often higher than the interest rate on your loan. The A.P.R. can be compared to other loans for which you may have applied and the A.P.R. gives you a fair method of comparing the actual cost of each loan.
Q. What is the amount financed?
A. The amount financed is the mortgage amount applied for minus prepaid finance charges and any required deposit balance. Prepaid finance charges include the loan origination fee, commitment or placement fee (points), adjusted interest, and initial mortgage insurance premium. The amount financed represents a net figure used to allow you to accurately show the amount of funds actually provided.
Q. Does this mean I will receive less money than the loan amount I originally applied for?
A. No. If your loan is approved for the amount you applied for, that's how much will be credited toward your home purchase or refinance at settlement.
Q. Why is the annual percentage rate different from the interest rate for which I applied? Why is the amount financed different?
A. The amount financed is lower than the amount you applied for because it represents a net figure. If someone applied for a mortgage of $50,000 and their prepaid finance charges total $2,000, the amount financed would be shown as $48,000 or $50,000 minus $2,000. The A.P.R. is computed from this lower figure, based on what your proposed payments would be. In a $50,000 loan with $2,000 in prepaid finance charges, and an interest rate of 14%, the payments would be $592.44 (principal and interest) on a loan with a thirty year term. Since the A.P.R. is based on the net amount financed, rather than on the actual mortgage amount, and since the payment amount remains the same, the A.P.R. is higher than the interest rate. It would be 14.62%. If the applicant's loan were approved he would still receive a $50,000 loan for thirty years with monthly payments of $592.44.
Q. How will my payments be affected by the Disclosure Statement?
A. The Disclosure Statement only discloses your estimated payments. The interest rate determines your monthly principal and interest payment.
Q. What is the finance charge?
A. The finance charge is the total cost of credit. It is the total amount of interest calculated at mortgage interest rate over the life of the loan, plus prepaid finance charges and the total amount of mortgage insurance charged over the life of the loan. This figure is estimated on the disclosure statement given with your application.
Q. What is the total of payments?
A. This figure indicated the total amount you will have paid, including principal, interest, prepaid finance charges, and mortgage insurance if you make the minimum required payments for the entire term of the loan. This figure is estimated on the Disclosure Statement and is estimated in any adjustable rate transaction.
Q. My statement says that if I pay the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean?
A. 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 not refundable. Neither is any interest which has already been paid. If you pay the loan off early, you should not have to pay the full amount of the "finance charges" shown on the disclosure. This charge represents an estimate of the full amount the loan would cost you if the minimum required payments were made each month through the life of the loan.
Q. Why must I sign the Disclosure Statement?
A. Mortgage lenders are required by law to provide the information on this statement to you in a timely manner. Your signature merely indicates that you have received this information, and does not obligate either you or the lender in any way.