One of the most important documents you will sign when obtaining a mortgage loan is the Federal Truth-In-Lending disclosure. This document shows you the effects of your closing costs and interest rate throughout the full term of your loan. Reading this document correctly will help you discern whether or not you are getting the right loan.
Annual Percentage Rate
One important number featured on this document is your annual percentage rate (APR). This number will be higher than your actual note rate, but noting how much is important. Since this percentage accounts for the amount of upfront closing costs you are paying, the higher this is above your note rate, the higher your closing costs are.
Finance Charge and Amount Financed
Because it is easy for lenders to conceal your actual charges, this form will help you understand just how much you are paying. Your finance charge will be the number that accounts for things like origination points, service fees, and credit fees. The amount financed, then, is what is left after those fees have been deducted from your loan amount.
Total of Payments
This is the scariest number on the form as it represents what you will pay back over the life of the loan. This number can be double or triple what you are initially borrowing as your interest will add up considerably over the complete term of the loan.
Other Important Things to Note
You will also want to look at two other sections very closely. Near the bottom of the page you will find check boxes that determine whether or not your interest rate is fixed or adjustable and whether or not your loan has a prepayment penalty.
Understanding how to read the Truth-In-Lending statement will ensure that you get the loan that you expect.