FAQ About Mortgage Financing and Interest Rates

Q: What is the Truth-in-Lending Disclosure, and why do I receive it?

A: The disclosure is designed to give you information about the costs of your loan so that you may compare these costs with those of other loan programs.

Q: What is the “Annual Percentage Rate”?

A: The Annual Percentage Rate (APR) is the cost of your credit expressed as an annual rate. Because you may be paying loan discount “points” and other “prepaid” finance charges at closing, the APR on the loan programs give you a consistent means of comparing rates and programs.

Q: Why is the APR different from the interest rate for which I applied?

A: The APR is computed from the total finance charges (upfront and for the coarse of the loan) and based on what your proposed payment will be for the actual loan amount you receive at settlement.   Because of prepaid fees and finance charges, the APR is typically higher than the interest rate on the loan.

Q: What is the finance charge?

A: The finance charge is the cost of credit expressed in dollars. It is the total amount of interest calculated at the interest rate over the life of the loan, plus prepaid finance charges and the total amount of any required mortgage insurance charged over the life of the loan.

Q: What is the amount financed?

A: The amount financed is the loan amount applied for, minus the prepaid finance charges. Prepaid finance charges include items paid at or before settlement, such as loan origination, commitment or discount fees (“points”), adjusted interest, and initial mortgage insurance premium. The amount financed is lower than the amount you applied for because it represents a NET figure. If you applied for a $50,000 loan and the prepaid finance charges total $2,000, the amount financed would be $48,000.

Q: What is the total of payments?

A: This figure represents the total amount you will have paid if you make the minimum required payments for the entire term of the loan. This includes principal, interest and mortgage premiums, but does not include payments for real estate taxes or for property insurance premiums.