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By Tammy Engel
Mortgage Advisor 

Here's a TIP

Mortgage Matters

 


New mortgage disclosures became effective this week. Consumers will now be given a Loan Estimate at the beginning of their loan process.

This form combines several earlier forms into one format. You'll be told your loan amount, interest rate, payments, and detailed closing costs, just like before. There's one new field, though, that is likely to blow everybody's mind.

In the comparisons section, you'll now see the Total Interest Percentage, or TIP. This figure is "the total amount of interest that you will pay over the loan term, as a percentage of your loan amount." Sounds like something a reasonable consumer would want to know, right? Okay, but what you'll see is a crazy high number, and it's likely to cause more confusion than help.

Basically, we're taking the amount of interest you would have paid over the full term of the loan, and dividing it into the initial "amount financed".

Just for fun, here are some examples. On a $94,000 loan at 3.625% for 15 years, the TIP calculates to 33.44%. On a $116,000 loan amount at 4.125% for 30 years, the TIP calculates to 79.04%. It feels shocking just to type those numbers!

The Consumer Finance Protection Bureau is trying to make obtaining a home loan very transparent to borrowers. If everybody will just relax and know these figures are new measures of something we've always dealt with, we should be okay. But in the end, it's your financial liability, so please work with a mortgage professional you trust, and who will take the time to explain everything before you sign your final loan documents.

Tammy Engel is your local Mortgage Advisor, and she's worked for your best interest since 1990.

Contact her at 661/822-7325 for purchase, refinance, and reverse mortgage.

 
 

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