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Understanding Common Truth in Lending Act Terms

Allison Beatty
LoanBiz Columnist

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The Truth in Lending Act requires lenders to clearly identify important loan information, such as the interest rate, loan terms, and total interest you will pay. Among the common terms you will see--or hear about--from your home loan or credit card lender are:

Adjustable rate mortgage (ARM)--This type of mortgage has an interest rate that adjusts based on a given index. Common terms include the "5/1" ARM, which carries the same rate for 5 years, then adjusts each year after that.

Adjusted interval--With an adjustable rate mortgage, this is the time between changes in the interest rate. The period is typically one, three, or five years.

Affordability analysis--An analysis of your ability to buy a home. This takes into account your credit history, debt, income, and assets.

Amortization--The time period during which you will owe principal and interest to the lender.

Amortization schedule--The breakdown of the principal and interest payments on the loan.

Annual percentage rate (A.P.R.)--The rate you will pay on the mortgage, which defines how much the mortgage will cost you on a yearly basis. The Truth in Lending Act requires this rate to be clearly disclosed. The rate takes into account any points or additional credit costs, so it may be higher than the advertised rate for the mortgage.

Appraisal--The estimated value of the property. The information is used by the mortgage lender to determine how much it can lend on the property. You'll then apply for a home loan based on the appraised value.

Closing Costs--Fees such as title insurance, origination fees, county or local taxes and transfer taxes paid by buyers and sellers during a home loan transaction.

Lending agreements can be complicated, and the industry lingo doesn't help. Before you settle on a loan, be sure you know exactly what you're getting into.

Source
The Motley Fool

About the Author
Allison E. Beatty is a syndicated real estate writer who has been writing home improvement columns for 15 years.

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