For Your Additional Information, the Truth in Lending Form

As you’re probably well aware by now there are a myriad of documents and forms required in the home buying process. Another important one is the Truth in Lending (TIL) form. This is so important in fact, that the federal government requires that credit providers make sure that each client has one. Since real estate usually involves large amounts of money, it’s critical that you read and understand all of the information.

Many financial documents (or any legal document for that matter) seem unusually complicated. It almost seems like whoever designed them went out of their way to make it hard to understand. Be sure to ask for help with any part of the Truth in Lending form that you don’t understand. Below is a brief summary of what the TIL form consists of.

The first part gives the annual percentage rate of interest (APR). It’s different from the interest on the loan itself. For example, many times the closing costs are added into the mortgage rather than paying them upfront, allowing you to pay them off over the length of your loan. The mortgage itself has a specific interest rate. The closing costs and any other additional charges that have been added, are computed out over the length of the loan and added to this rate. Sometimes you can buy points, meaning a lower rate of interest. Each point represents 1% of the loan amount.

Next is the finance charge in dollars. It includes the interest, the closing costs as mentioned above, and any mortgage insurance charges that were also added to the base mortgage.

Number three is the amount financed in dollars. It’s different from what you’re actually borrowing because it is the amount of the mortgage minus what was added in i.e. closing costs, points, etc.

The next section shows the approximate amount of your monthly payment.

Section five of the Truth in Lending form has two boxes, one of which will be checked. One says that if you pay your loan off early you could be penalized. The second indicates that if you pay it off early, there won’t be any extra cost to you. However, you won’t be refunded any accrued interest you already paid.

Part six relates to finance charges. You’re only responsible for interest on money while it’s being used. Any prepaid finance charge or interest will not be refunded.

Finally, section seven says that the lender is the only one who can decide if the loan is assumable. The term “assumable” refers to you selling the house and the mortgage to someone else. In this case it says on the TIL form that the lender will decide if that will happen. Generally they don’t allow it.

As mentioned, this is only a brief summary of the Truth in Lending form. It’s definitely important you fully understand and agrees with all of the conditions before signing the mortgage. Of course we’ll be working closely with you on that.