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How to read a Truth-In Lending (TIL)
The Truth-In-Lending Disclosure is a document that is questioned by borrowers the most. This is because the rate stipulated on the Truth-In-Lending is higher than the interest rate the borrower has been quoted by the loan officer. The Truth-In-Lending has the following sections:
1. Lender/Borrower Information
2. Loan Cost Section which includes APR, Finance Charge, Amount Financed, Total Payments
3. Payment Schedule
4. Loan Features
5. Fees Associated With Servicing loan
6. Insurance requirements
7. Assumption
Each section will be explained below to help you understand a Truth-In-Lending.
The Loan Cost section is commonly misunderstood. When discussing the terms of your loan with the lender/broker, you will generally discuss the terms as the "Note Rate" which will be the interest rate you will pay on the dollar amount. For example, if you currently owe 293K and are refinancing with a 300K new loan amount at a 6.25%, you will pay 6.25% on 300K.
The APR takes into account the fees that are being rolled into the loan as part of your "interest rate". Since the loan includes approximately 7K in fees, the APR will be slightly higher than a 6.25% Your APR will be higher than the note rate due to the fees included in the loan. In the end, the note rate is the actual interest rate you will pay, based on your new loan amount.
The Cost of Loan section includes the APR, Finance Charge, Amount Financed, and Total Payments.
The APR expressed as a percentage will tell you the true cost of borrowing money because it takes into account all the fees associated with securing the loan such as origination fees, title fees, lender fees and etc.... This rate will be higher than what you are quoted because it takes into all the above fees while the interest rate you are quoted is used to calculate your monthly payment.
Finance Charge expressed in dollars will show you how much it will cost you to keep the loan for the full term assuming the APR does not change.
Amount Financed is the amount of credit being provided to you. This amount is usually lower than the origial loan amount because it is calculated by subtracting your APR Fees from the original loan amount.
Total Payments shows you in dollars how much you will have paid over the full term of the loan including both principal and interest. This figure is a little scary to most borrowers.
The Lender/Borrower section lists the lender/broker's name, borrower's name, loan number, property address and the date the TIL was prepared. It will also state whether the Truth-In-Lending is estimated or based on final terms of the loan.
Your Truth-In Lending disclosure will offer you the "true cost" of your loan by combining your principle balance with the interest paid through the life of the loan. There is a way you will be able to pay less for the true cost of the loan by setting up your loan with a biweekly mortgage payment plan.
Payment Schedule: This section shows the borrower the exact amount of the payments the borrower is anticipated to make over the life of the loan. On Fixed Rate Mortgages , this section may only have 1 to 2 lines because the payments will remain the same over the life of the loan. However, Adjustable Rate Mortgages will contain several lines depending on the Adjustment Caps, Lifetime Cap, and Adjustment Periods.
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