DEFINITIONS OF TRUTH-IN-LENDING TERMS

The following are definitions of some of the terms which are used in Truth-in-Lending disclosures which are required by federal law. The disclosures are provided to enable an applicant to compare the mortgage terms of various lenders.

Prepaid Finance Charges:

PREPAID FINANCE CHARGES are those direct loan charges, paid by the borrower (not a third party), that are required by Truth-in-Lending regulations to be included in computing the Annual Percentage Rate. They include, but are not limited to: loan origination, discount, and commitment fees; prepaid private mortgage insurance premiums (PMI); prepaid FHA mortgage insurance premiums (MIP); VA funding fee; underwriting, processing, tax service, and messenger fees, if paid to the lender; buydown and shortfall funds; and prepaid interest.

Annual Percentage Rate (APR):

The APR is not the same as the note interest rate, if there are any PREPAID FINANCE CHARGES or buydown fees paid by the borrower. The APR takes into account all of these charges and fees and gives the applicant(s) a way to measure and compare the effective annual interest cost of the loan.

Finance Charge:

The total cost of credit as a dollar amount. It is the total of PREPAID FINANCE CHARGES plus the total interest and mortgage insurance premiums, if any, which would be paid over the life of the loan, if paid according to the Payment Schedule. If the loan is based upon an adjustable rate of interest, the FINANCE CHARGE will be subject to change if the interest rate varies.

Amount Financed:

This is not the loan amount. It is the amount requested as a loan by the applicant (including any MIP which is to be financed), less applicable PREPAID FINANCE CHARGES paid at closing.

Total of Payments:

This amount is usually the total of the Finance Charge and the Amount Financed. It is the total of PREPAID FINANCE CHARGES, plus principal, interest and mortgage insurance premiums, if any, which would be paid over the life of the loan, if paid according to the Payment Schedule. If the loan is an adjustable rate mortgage, the amount may be subject to change if the annual percentage rate changes.

Payment Schedule:

The payments indicated include only principal and interest (and if applicable, mortgage insurance premiums). The amounts do not include payments into escrow for homeowners insurance or property taxes. If the loan is a variable rate transaction in which the initial interest rate is not determined by the index or formula used to make later interest rate adjustments, the Payment Schedule must reflect a composite APR based on the initial rate for as long as it is charged, and for the remainder of the term the rate that would have been applied using the index or formula at the time the loan closes. The effect of any rate or payment caps are reflected in the Payment Schedule. If the loan is a variable rate transaction in which the initial interest rate is determined by the same index or formula used to make later adjustments, then the Payment Schedule is prepared on the assumption that the rate used will not vary over the life of the loan.

The above definitions are intended to assist the applicant(s) in better understanding Truth-in-Lending disclosures. The definitions are only intended to be short summaries. Applicant(s) with legal questions should consult their own attorney for advice.