Whenever you close on a property with a fixed rate loan, one of the most informative documents you will receive is the Truth In Lending Disclosure Statement. The statement outlines several key elements of the mortgage or loan that you are closing. I have been lucky enough to close on three properties myself. Through working as a paralegal I have assisted an attorney at closing with documents, including the Truth In Lending Disclosure Statement.
The Truth In Lending Disclosure Statement is one of the more straightforward papers in a real estate closing. It is not filled with legal language, rather boxes with numbers and dollar amounts pertinent to the sale. Understanding the key elements on this form will allow you as the borrower to better grasp the loan and the responsibility it will entail.
Annual Percentage Rate
The Annual Percentage Rate (APR) is the percentage rate is the interest rate plus the additional costs above the principle of the amount financed. This rate is usually slightly higher than the interest rate agreed upon, but shows a more accurate amount of what you will pay.
This is the total amount that the borrower will pay if the loan is paid as agreed. This includes finances charges and interest on the principle of the loan. If there are late payments, the amount will increase due to late charges and extra interest. If the loan is paid off early, the amount will be reduced.
The amount financed represents the amount of money that is being borrowed. This includes the principle amount of the loan and any finance charges that are a part of the loan instead of paid up front. Any finance charges that are paid up front are removed from this total.
Total of Payments
This is the total amount that the borrower will pay over the course of a loan. This amount will change by the borrowers payment habits. It will go up if payments are late and will be reduced if extra payments are made or the loan is paid off early.
This section shows the buyer how many payments will be owed and how much the payment will be. It will also show how often the payments are due. Many loans have monthly installments.
Be aware, this document is only accurate for fixed rate loans. Variable Rate Loans or Adjustable Rate Mortgages (ARM) will have interest rate fluctuates over the lifetime of the loan. It is impossible to determine the exact cost due to the changing nature of the interest rate.
Understanding these basic elements of your Truth In Lending Disclosure Statement will provide a basic overview of the costs associated with the loan. Be an aware consumer and use this statement to prepare yourself for the financial commitment purchasing property entails.
More From This Contributor:
Envelope Budgeting – Taking Control of Your Family’s Financial Life
Credit Freeze: Protect Yourself From Identity Theft
Save in the Grocery Store Without Coupons