“How to Read a Truth-In-Lending Statement”

When you apply for a mortgage with any company, you should receive a complete RESPA package to review. Within this pack will be an important form called the Federal Truth-In-Lending disclosure. This document will serve as your indicator of how much your prospective loan is costing you. Below are a few important things that you will want to look at closely while reviewing this form:

Annual Percentage Rate

Your annual percentage rate (APR) is a number that accounts for the cost of your mortgage loan. This number will always be different than your actual note rate. This is a good number to use when comparing lenders offering the same interest rate. Generally speaking, the greater the difference between your APR and your actual note rate, the more upfront closing costs you are paying.

Finance Charge and Amount Financed

In this section, you will see how much your loan will cost you if you make all of the payments without refinancing. This number can be staggering, especially if your loan is large. The dollar amount represented by the finance charge will always be considerably higher than your amount financed even if you are getting the lowest interest rate available.

Total of Payments

This number can be truly shocking the first time you look at one of these forms. It is not unusual for your total of payments to be double or even triple what you initially borrowed. No matter what your interest rate, the cost of interest will add up greatly, especially over a thirty-year period.

Other Important Things to Notice

Near the bottom of the page, you will also want to check and make sure you are getting the type of rate promised, i.e. fixed or adjustable. You will also want to look for the check boxes that will tell you if your loan will or will not have a prepayment penalty.

Understanding this confusing form will ensure that you get the type of loan you want at the fairest price. We hope that these explanations will help you better understand an important element of the lending process. If you have any questions about what you have read here, or if you would like to discuss other facets of the mortgage process, please feel free to call us toll free 1-888-383-5363 or simply fill out the question box below. We will be glad to help you in any way we can. There is never any obligation, and there are no fees associated with simply answering your questions.