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| GENERAL QUESTIONS |
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The Truth In Lending Disclosure |
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What is a Truth-in-Lending disclosure Statement and why does the borrower receive it? |
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What is the ANNUAL PERCENTAGE RATE? |
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What is the AMOUNT FINANCED? |
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Does this mean I will get a lower mortgage than they applied for? |
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Why is the ANNUAL PERCENTAGE RATE different from the interest rate that I applied for and locked? |
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How will the Disclosure Statement affect my payments? |
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What is the FINANCE CHARGE? |
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What is the TOTAL OF PAYMENTS? |
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My statement says that if I pays the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean? |
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Why must I sign the Disclosure Statement? |
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What is a Truth-in-Lending disclosure Statement and why does the borrower receive it? |
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The Disclosure Statement provides information which Federal law requires us to give the borrower. The purpose of the statement is to give the borrower information about their loan and help them to shop for credit.
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What is the ANNUAL PERCENTAGE RATE? |
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The Annual Percentage Rate, or APR, is the cost of the borrower's credit expressed in terms of an annual rate. Because the borrower may be paying "points" and other closing costs, the APR disclosed is often higher than the interest rate on the loan. The APR can be compared to other loans for which the borrower may have applied and give them a fair method of comparing price.
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What is the AMOUNT FINANCED? |
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The amount financed is the mortgage amount applied for MINUS prepaid finance charges and any required deposit balance. Prepaid finance charges include items such as loan origination fees, commitment or placement fee (points), adjusted interest, and initial mortgage insurance premium. The Amount Financed represents a NET figure used to allow the borrower to accurately assess the amount of credit actually provided.
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Does this mean I will get a lower mortgage than they applied for? |
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No,
if the borrower's loan is approved for the amount they applied for, that's how much will be credited toward their home purchase or refinance at settlement.
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Why is the ANNUAL PERCENTAGE RATE different from the interest rate that I applied for and locked? |
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The Amount Financed is lower than the amount the borrower 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 APR is computed from this LOWER figure, based on what the borrower's 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 loan term. Since the APR is based on the NET amount financed, rather than on the actual mortgage amount, and since the payment amount remains the same, the APR is higher than the interest rate. It would be 14.62%. If this applicant's loan were approved he would still receive a $50,000 loan for thirty years with monthly payments @ 14% or $592.44.
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How will the Disclosure Statement affect my payments? |
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The Disclosure Statement only discloses the borrower's estimated payments. The interest rate determines what the monthly principal and interest payment will be.
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What is the FINANCE CHARGE? |
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The Finance Charge is the cost of credit. 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 mortgage insurance charged over the life of the loan. This figure is ESTIMATED on the disclosure statement given with the borrower's application.
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What is the TOTAL OF PAYMENTS? |
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This figure indicates the total amount the borrower will have paid, including principal, interest, prepaid finance charges, and mortgage insurance if he or she 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.
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My statement says that if I pays the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean? |
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This means that the borrower will be charged interest for the period of time in which he used the money loaned to him. His PREPAID finance charges are not refundable. Neither is any interest, which has already been paid. If he pays the loan off early, he 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 him if the minimum required payments were made each month through the life of the loan.
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Why must I sign the Disclosure Statement? |
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Lenders are required by law to provide the information on this statement to the borrower in a timely manner. The borrower's signature merely indicates that he has received this information, and does not obligate the borrower, you or the Shearson Mortgage in any way.
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