Telling the Truth about Mortgage Lending

By Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group

How can you really figure out what exactly your payi= ng in finance charges if you keep that mortgage for 30 years? What's another tool to use in comparing mortgages? Check out your Truth in Lending document.......

There’s a bunch of important points to review wh= en considering a mortgage. And a ton of paperwork to look over. So much so at times it can be quite overwhelming. A Good Faith Es= timate is one document to consider, and many people focus solely on it. But, in 1968, our lawmakers wanted= to make sure lenders made it clear to the consumers just exactly what they were paying and that this information was consistently disclosed lender by lender. And for that, we have= the Truth in Lending document, created by the Truth In Lending Act and outlined by Regulation Z.&= nbsp;

The Truth in Lending document, or TIL as it’s affectionately known in the Biz, tells the consumer a lot about what he/she is getting into. It tells so much so that it can confuse a person, too. Thus, it is important to know and understand what it tells you. It allows one to make an informed decision.&n= bsp; A TIL should be part of the beginning of the loan process and the end. When it’s all said and done, a mortgage customer should have reviewed an estimated TIL before closing, and then have also signed his/her final TIL at loan closing. The information found on the estimated TIL shouldn’t be too far off from the final TIL.&n= bsp; If it is and you don’t understand the explanation for it, it’s time to put on the brakes.

A TIL will reflect your loan amount, interest rate and= the amortization of your loan. A = TIL comes in a standard layout, and most TILs will look the same from a distanc= e, though there may be a few variations, like a payment reflection, lenderR= 17;s logo, etc. But the nuts and t= he bolts should be identical in format.

The main thing you notice about TILs is they all have = four boxes containing numbers stretched across their horizon. These boxes don’t mean much = to you until they’re explained. But these are important numbers, which is why they are so blatantly highlighted= in these little boxes. They shouldn’t be brushed off. If the TIL is an estimated or intial TIL, you’ll see a little “e” by the numbers in the boxes. Pretty straight forward - “e” means estimate. The final TIL you sign at closing should reflect all the numbers on your HUD-1 settlement papers and the “e” should be gone. That means you’re signing the final, real McCoy that is calculated by your final numbers.

The first box on the TIL reflects the Annual Percentag= e Rate (APR) or cost of your credit expressed as a yearly rate. Don’t panic, this rate is not your intere= st rate. It is the rate that the closing costs are actually costing you annualized over a year, and generall= y it is higher than your interest rate. However, if your mortgage is locked at a 5% interest rate, but your = APR rate is 10%, you should reconsider the de= al or get a second opinion. YouR= 17;re paying too much.

The second box is the Finance Charge or the dollar amo= unt the credit will cost you. It is the total amount of interest calculated at = the interest rate over the life of the loan, plus Prepaid Finance Charges and t= he total amount of any required mortgage insurance charged over the life of the loan. The third box reflects = the Amount Financed or the total amount credited to you on your behalf, minus P= repaid Finance Charges.

The fourth box is the one that gets most people’s attention - the Total of Payments. It’s the amount that a customer will actually pay back in principal, interest (and mortgage insurance, if applicable) if they keep the loan for the full term and stick to the outlined amortization schedule. Ouch. People find this number a little incredulous. I guess it really sends it home that mortgage lending is a business, and some company is goin= g to make some money from it.

There are three other things on a TIL I like to point = out to a customer. One is the late p= ayment penalty. People need to know = what it will cost them if their check gets to the Servicer late. It’s usually 4% or 5% of the monthly principal and interest payment, depending on the loan type. Another VERY important feature a l= ender should point out to a customer is if there is a PRE-PAYMENT penalty on the loan. A pre-pa= yment penalty means that if you pay the loan off before a pre-determined time, you pay for the luxury of doing so. Make sure you know the terms of the pre-payment penalty if you should have one, and that you are certain you can live with it. They can be quite costly. Finally, the TIL tells you that sh= ould you pay off your loan early, you won’t be entitled to any of your clo= sing costs or interest being refunded. In other words, don’t expect to get any of the money you have already paid back.

Simple enough, right?= To tell you the truth, it is confusing, even for a mortgage lender.<= span style=3D'mso-spacerun:yes'> Take time to understand this docum= ent and ask all the questions you have regarding it. Don’t be shy.

Let My Experien= ce Work For You!

Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.c= om or call

direct: (865) 567-0113

Toll Free: 1-800-489-8910.

For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.

Truth and Lending, Mortgage Rates, home loan financing, credit reports, Home Loan Plain Talk, Mortgage Specialist, Krist= in Abouelata