Truth in Lending (TIL)

The federal law that specifies the information that must be provided to
borrowers on different types of loans. Also, the form used to disclose this information. Truth in
Lending (TIL) is a great idea, in principle. The idea is to require lenders to provide one uniform
set of price disclosures that are consistent from loan to loan and from lender to lender. Then
consumers can make apples-to-apples price comparisons across loan types and across lenders. The idea
has worked concerning the methodology used to calculate interest cost. Borrowers no longer have to
contend with non-comparable ways to calculate interest: discount rates, add-on rates, and internal
rates of return. APR: The internal rate of return used to measure interest cost on a mortgage is
called the annual percentage rate, or APR. The APR on a mortgage is misleading because upfront fees
are a major cost, yet only some of them are included in the APR. In addition, the APR assumes all
loans run to term, when in fact most mortgages are paid in full well before term. Subordination
Policy on Second Mortgages: Very few borrowers who take out a second mortgage are aware that the
second mortgage lender can prevent them from refinancing their first mortgage. When the existing
first mortgage is repaid, the existing second mortgage automatically becomes the first mortgage
unless the second mortgage lender is willing to subordinate his claim to that of the lender providing
the new mortgage into which the borrower is refinancing.

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