Explanation of TIL and APR
Explanation of Closing Disclosure
In comparing any type of loan, whether it is a fixed rate loan to a fixed rate loan, adjustable rate loan to adjustable rate loan, or fixed rate loan to adjustable rate loan, there is one way that can be used to compare apples to apples and even apples to oranges.
APRs (Annual Percentage Rates) are designed to do just that. APRs are a way to calculate the annual cost of loans, taking into consideration loan origination fees (points) and the other costs associated with securing a loan. The additional costs include appraisal and credit report fees as well as processing and document fees.
One confusing aspect of APRs is that the APR on 15-year loans will carry a higher relative rate due to the fact that the points are amortized over the 15-year term rather than the 30-year term. When a Regulation Z (Reg Z, the mortgage companies disclosure of cost for the loan) is prepared for a buyer/borrower the prepaid interest is also included in the APR calculation. For our illustrations we will use only the points, appraisal, credit report, and processing and document fees. *
As a means of protecting consumers from companies who did not disclose the fees associated with a particularly low start rate on an adjustable rate loan or below market rate on a fixed rate loan, APRs give consumers a way to check the true cost of a loan.
For an accurate list of what affects the APR, see below:
Affects APR
Administration Fee
Application Fee
Closing Fee
Courier Fee
Discount Fee
Escrow Waiver Fee
Flood Certificate
Funding Fee
Mortgage Insurance
Mortgage Insurance Premium
Origination
Per Diem Interest
Processing
Tax Service Fee
Underwriting Fee
Does NOT Affect APR
Appraisal Fee
Attorney Fees
Credit Report Fee
Credits to Closing Costs
Escrow Fee
Escrow Account
– (Except Mortgage Insurance)
Final Inspection Fee
Homeowner’s Insurance Premium
Recording Fee
Re-certification of Value
Survey
Title Policy
Wire Transfer Fees