How Does the Truth in Lending Act Protect Your Mortgage?

In the past, unscrupulous lenders preyed upon uninformed borrowers. This was so widespread that the government set regulations that must be followed to maintain fair, transparent practices. One of those is the Truth in Lending Act.

Let’s talk about the Truth in Lending Act (TILA), its history, what it does, and how it protects you.

How TILA Was Born

Before the Act was passed, it was easy for borrowers to get bogged down by the amount of information and confusing terminology. It was often hard to compare loans to see which one was the best fit for an individual borrower.

These problems opened the door for predatory lenders. They could saddle borrowers with unfair loan terms and high or hidden fees.

The Truth in Lending Act, a federal law, was enacted in 1968 to put a stop to these practices.

What Is TILA?

TILA protects consumers from unfair lending practices, and it extends beyond mortgage loans to also include credit cards and auto loans. Under TILA, every mortgage loan company is required to provide a Disclosure Statement to borrowers that contains:

  • Borrower costs
    The annual percentage rate (APR) of the loan is clearly noted.
  • Finance charges
    The total amount of interest and fees the borrower incurs over the life of the loan is included. This information is based on timely payments (late payments can add on more fees).
  • Amount financed
    The dollar amount the creditor provides to the borrower is listed on the TILA.
  • Total payments
    The total amount of payments the borrower will pay by the end of the loan is included.

How Does TILA Protect Borrowers?

TILA helps borrowers feel confident they won’t be taken advantage of during their mortgage (and other) loan process. Some of the ways the Act does that are:

  • Better understanding of their loan
    The last thing a borrower wants after they’ve closed on their home is a nasty surprise that wasn’t divulged during their homebuying process. TILA minimizes the risk of that happening, which offers borrowers peace of mind.
  • Increased transparency
    Instead of vague and confusing contracts, TILA ensures the loan information is laid out clearly and is easy to understand.
  • Easier loan comparison options
    Before TILA, it was difficult for borrowers to compare loans and choose the one that fit their needs best. Now, clarity of details makes it simple to measure each option and decide wisely.

What Is Not Covered Under TILA?

Some loans are not covered under the Truth in Lending Act, such as:

  • Student loans
  • Loans made for purposes other than housing over $25,000
  • Business loans (TILA only applies to consumer loans.)

TILA is key to protecting borrowers during important lending decisions. It gives borrowers a way to see the terms, fees and total payments in a clear format that helps them make informed financial choices.