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Unformatted text preview: e in advance, you would receive $950, not $1,000. Therefore, you would have the use of $950 for one year, not $1,000. The APR would be calculated as follows: Interest + Service charge / Money received = $200 / $950 = 21% Under the Truth–in–lending law, there are several important terms. A prepaid finance charge is a charge paid separately or withheld from the proceeds of the loan. In real estate transactions, prepaid finance charges include loan origination fees, prepaid interest, tax service fee, and premiums for mortgage insurance protecting the lender, such as FHA or private mortgage insurance. The finance charge is the cost of the loan to the borrower. It is calculated by adding the interest paid over the life of the loan to the prepaid finance charge. The amount financed is the amount of the loan less the prepaid finance charges. If we applied these terms to the previous example, it would look like this: APR = Finance charge / Amount financed = (Interest + Prepaid finance charge) / (Loan amount – Prepaid finance charge)
Besides stating the APR, the disclosure statement must also provide other information on the loan. This includes information on the prepayment penalty, if any; late charges; and a three–day right of rescission in the case of refinancing and junior loans on a principal dwelling. The right of a borrower to observe this three–day right of recission may be waived, unless it is lender policy not to allow the waiver. If the lender does allow it, the reason generally acceptable is “financial hardship.” Form 11-1 Mortgage Loan Disclosure Statement ( 3 pages) 11-8 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 11: FINANCING DISCLOSURE REQUIREMENTS Dynasty School (www.dynastySchool.com) 11-9 REAL ESTATE FINANCE 11-10 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 11: FINANCING DISCLOSURE REQUIREMENTS Dynasty School (www.dynastySchool.c...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10