Within the attachments included in your loan strategy are your Fee Sheet, and Truth-In-Lending Disclosures. The calculations in the Federal Truth-In-Lending Disclosure are based upon estimates of your loan costs from your Fee Sheet. You will receive another form at the time of closing called a re-disclosure or Final Truth-In-Lending Disclosure that will be based upon the final figures at closing.
The following is an explanation of the terms found in the Truth-In-Lending Disclosure.
- Annual Percentage Rate: This is not the Note rate. It is the cost of the loan in a percentage that includes various loan fees you will pay, also known as prepaid finance charges, of which interest is only one such charge. Some of those fees may include but are not limited to: Private Mortgage Insurance, FHA Mortgage Insurance Premiums, Discount Points, Tax
Service Fees, Flood Certification Fees and other fees that may be charged by the Lender. (See the Fee Sheet for a total breakdown of such fees.) The APR is calculated by spreading all fees, including the interest rate on your loan, over the life of the loan. These results in a rate generally higher than the interest rate shown on your Note. If there are not any closing costs for your mortgage, and assuming there is not mortgage insurance on your new loan, then your interest rate and APR will be the same (with the exception of any pre-paid interest on the loan).
- Finance Charge: This figure is the total amount of interest received from your monthly payments plus any Prepaid Finance Charges. This is the amount you will pay in interest and fees over the life of the loan.
- Prepaid Finance Charges are fees charged by the Lender that must be paid upon the close of the loan. Whether a fee is a PFC or not is defined by the Federal Reserve Board in Regulation Z or the Truth-In-Lending Act. In order for a fee to be considered a PFC, the borrower must pay the fee. Under this regulation, some fees may be excluded from the calculation including but not limited to Appraisal Fees and Credit Report Fees.
- Amount Financed: This is calculated by subtracting the total Prepaid Finance Charges (explained above) from the Note
Amount. For example: If the Note Amount is $100,000 and the PFC’s total $5,000, the Amount Financed would be $95,000.
The Annual Percentage Rate (APR) is based on this amount.
- Total Payments: This figure shows the total amount you will pay in payments (principal and interest) plus PFC’s over the life of the loan if you pay all payments as agreed for the full term of your loan. This is calculated by adding the Finance Charge to the Note Amount.
Should you have further questions about these items or about other sections of the disclosure form, please contact me.