GOOD FAITH ESTIMATE & TRUTH-IN-LENDING
It costs money to borrow money. The cost includes not only the interest that accrues during the loan term, but also up-front fees (paid at closing) for lender expenses associated with making the loan (e.g., underwriting, document preparation). Under revisions to federal law effective January 1, 2010, there are strict requirements governing the relationship between the charges set forth on your Good Faith Estimate and what you actually pay at closing.
One critical piece of information on the Truth-In-Lending form is the annual percentage rate (“APR”). APR is a numeric (percentage) expression of your interest rate plus the cost of the loan. This number provides you with an easy way to compare two or more loans. For example, suppose you are considering two 30 year fixed rate loans offered by two different lenders - the first with an interest rate of 6.125 percent and loan costs of $2,000.00 and the second with a 6.00 percent interest rate and $4,000.00 in costs. Which loan is better? APR expresses both loans in terms of a percentage that allows you to compare.