Thursday Terms: Truth-In-Lending (TIL)

One of the most informative documents you will receive in your application package and closing package is the Truth In Lending statement, also referred to as a TIL (pronounced: 'till'). This statement outlines key elements of your loan and helps you, as a borrower, to fully grasp exactly the responsibility your mortgage entails.

The multiple boxes seen at the top of the first page of a TIL filled with percentages and dollar amounts can be confusing until you understand what information each offers.

ANNUAL PERCENTAGE RATE

• The Annual Percentage Rate, also referred to as APR, is usually slightly higher than your Interest Rate as it takes into account various fees and costs, such as: mortgage insurance, most closing costs, origination fees, and discount points.  This percentage is an estimate and may change if there are any changes in loan amount, loan term, or other criteria. Remember that your monthly mortgage payment is not based on the APR percentage, but is based on the locked Interest Rate.

FINANCE CHARGE

• This is the total amount that you, as the borrower, will pay if the loan is paid as agreed. This includes finance charges and interest on the principal loan. Note that if there are late payments, this amount will rise due to late charges and extra interest. If the loan is paid off early, however, the amount will be reduced.

AMOUNT FINANCED

• The Amount Financed represents the amount of money that is being borrowed. This includes the principal loan amount and any finance charges that are a part of the loan and not paid up-front; any finance charges paid up-front are removed from this total.

TOTAL OF PAYMENTS

• This is the amount that you, as the borrower, will pay over the course of your loan. This amount can change based off of your payment habits; as noted under 'Finance Charge', the total will go up if there is a late payment and will reduce if extra payments are made.

INTEREST RATE AND PAYMENT SUMMARY

• This section clearly states what your Interest Rate will be and how much the monthly payment will be - with an estimated amount for escrowed taxes and insurance broken out.

**It is important to note that the above explanation and example is only accurate for a fixed-rate loan. Adjustable Rate Mortgages (ARMs) will have interest rates that fluctuate over the life of the loan and it is impossible to determine the exact cost due to the changing nature of the rate.