TRID – APR AND TIP EXPLANATIONS
A. APR (Annual Percentage Rate)
APR Introduction. The (APR) is the total yearly cost of a loan expressed as a percentage of the overall loan amount. The APR is considered the industry standard for a borrower to compare when shopping for a mortgage loan with different lenders. Interest rates offered by lenders may be the same, but the amount of fees charged to the borrower could result in different APRs.
Regulation Z requires lenders to provide the borrower with an APR.
Prior to TRID, the APR has been provided to the borrower on the Truth-in-Lending (TIL) disclosure.
Under TRID, the APR will be provided on the Loan Estimate (LE) and the Closing Disclosure (CD). There have not been any changes made to the formula for calculating the APR. What has changed is that if the APR changes by more than 1/8 of 1.00% (0.125%) from the last disclosed Closing Disclosure, Academy must provide the borrower with a new disclosure reflecting the correct APR. An additional 3-day delivery and 3-day review period will be required, resulting in a potential delay for closing.
Under TRID, the amounts that are relied upon to calculate the APR include the Amount Financed and the Total of Payments. Any revisions made to the loan that change any of these numbers are likely to result in a change to the APR.
APR Table. The following table may provide a better understanding of what can cause a change to the APR. With proper planning, delays to closing can be minimal.
APR TABLE: What Can Cause a Change to the APR Term Definition What Could Change a. Amount Financed
Note Amount minus Finance Charges
Total loan amount
b. Finance Charges
Cost of consumer credit as a dollar amount. Includes charges payable directly or indirectly by the borrower and imposed by Academy as a condition of the extension of credit.
Lender fees: origination, discount points, processing, application, admin, commitment, underwriting, lender doc prep, lender inspections, housing agency fees, MCC fees, daily interest, etc.
Third-party fees: UFMIP, VAFF, USDA guarantee, attorney fees, National Homebuyers Fund, etc.
Closing agent fees: title or settlement closing fee, escrow, notary or signing service, wire fee, etc.
c. Total of Payments
Sum of payments – scheduled payments for principal, interest and mortgage insurance, if applicable
Term of loan
Adjustable payment features: index, margin, caps
B. TIP (Total Interest Percentage)
TIP Introduction. Lenders are required to provide the borrower with the Total Interest Percentage (TIP) on the Loan Estimate and Closing Disclosure. This is the total amount of interest that the borrower will pay over the life of the loan, expressed a percentage of the loan amount (Interest / Loan Amount = TIP). It is assumed that the borrower will make each payment in full and on time and will not make any additional payments.
TIP Table. Here are some TIP examples:
TIP TABLE: Examples of TIP Total Amount of Interest paid over the life of the loan Loan Amount Interest Rate Monthly Payment (P&I) Loan Term in months TIP $50,000 $100,000 — — — 50.00% $51,776 $100,000 3.00% $421.60 360 51.78% $71,871 $100,000 4.00% $477.42 360 71.87% $93,255 $100,000 5.00% $536.82 360 93.26% $192,746 $250,000 4.25% $1,229.85 360 77.10% $88,526 $250,000 4.25% $1,880.70 180 35.41% $57,313 $250,000 4.25% $2,560.94 120 22.93% $308,394 $400,000 4.25% $1,967.76 360 77.10%
Please note: The information included in this document is provided for informational purposes only. It is subject to change and is illustrative, not exhaustive, and it should not be applied as or interpreted as legal counsel in any way.