What is the Truth in Lending/ RegZ Form

The Truth in Lending Disclosure or Regulation Z form is also know as the TIL.  This along with your Good Faith Estimate are two forms designed to help you the borrower understand the actual cost of your new mortgage, regardless of what a lender may call their fees.  While the GFE itemizes all the fees associated with getting a new mortgage, the TIL takes those fees and annualizes them or calculates the Annual Percentage Rate (APR).  This APR is most always higher than your loans actual interest rate.  The only way that the APR could actually be the same as your interest rate is if there were no fees associated with the new loan.  Let’s take a look at how to read a TIL Disclosure.

The four boxes across the top of the TIL is usually the most confusing part of the Truth in Lending so let’s start there.  The first box is where the APR of the loan is listed.  This rate is calculated by taking the “Finance Charge” in the next box, and then annualizing the number.  The “Finance Charge” total includes the interest for the life of the loan, Private Mortgage Insurance for the life of the loan and any Prepaid Finance Charges.  Prepaid Finance Charges include Origination and Discount Points paid by the borrower, Interest on the new loan from the date of closing to the end of the month, Prepaid mortgage insurance premium, mortgage insurance escrow and the tax service fee.  The next box is the “Amount Financed.”  This represents your new loan amount minus all the prepaid items that we mentioned above.  The last box is as simple as it sounds.  It is the total of all of your payments if you were to pay the scheduled payment on this loan for the entire term of the loan.  That last number is usually a pretty scary looking number because most of the time, it is a little more than double your original loan amount.  (Check out www.DebtFreeLongmont.com if you would like to see how you can reduce your total payment substantially without having to change your lifestyle.)

The Section below the four boxes is the payment schedule of the new mortgage.  This section can be a little misleading if you have and adjustable rate mortgage.  This is because a mortgage professional cannot with any accuracy tell you where interest rates are going to be when your interest starts to adjust.  They can just put an estimate down based on where indexes are today.  But if you have a 30 year fixed, with no mortgage insurance you should see 359 payments of the same amount and then 1 payment that is slightly different just to close out the loan.  There are many variations on this section so it is best to just make a mortgage professional like The Kunselman Team explains your particular situation to you.

The bottom section of the Truth in Lending Disclosure has a lot of little sections that explain things like if you are getting credit life insurance or credit disability insurance, what kind on insurance you have to keep on your house when you get the loan.  It also outline the property that the mortgage will be secured against as well as outlining penalties for late payments and details about prepayment penalties and/or assumption of this loan.  Here is what you should see in this section.  Most of the time, you will not need any of the Credit Life/Credit Disability Insurance but you will be required to keep hazard insurance on your property. (You may also need Flood insurance if you house is located in a flood zone.)  The typical late charge is 5% of the payment and this is only assessed after the 15^th of the month.  That means you can pay your mortgage anytime between the 1^st and the 15^th of the month without paying any penalty.  Also, make sure you check whether or not your new loan will have a prepayment penalty.  You don’t want any surprises with this down the road.

The last thing that I really want to say about the Truth in Lending form is that this is not a contract.  If the calculated APR changes by more than .125%, the mortgage professional is required to re-disclose a new TIL but quite often that doesn’t happen.  This disclosure is only as good as the person providing it to you so make sure that you are working with a Mortgage Professional you Know and Trust, like The Kunselman Team.