What is a Closing Disclosure?
The Mortgage Process
Mortgage

Closing a mortgage is one of the most stressful events that any homeowner can go through. It is when the mortgage lender-borrower finally gives the property back to you after all the months and years of paying back the loan. At this point, you are in the position where you want to know exactly what you are going to pay for the next several years. You do not want to overpay but at the same time you do not want to underpay for something that may end up costing you a lot more in the end. To make things easier, lenders now include a Closing Disclosure in your mortgage.

According to mortgage industry rules, the lender should provide the borrower with a Mortgage Disclosure at least three months before the close. This should provide the homeowner with a full view of the principal and interest accumulated on the loan. The disclosure should also contain the amount of outstanding principal at the time of purchase, the anticipated balloon payment amount and the due and unpaid balloon payments as well as the mortgage rates at the time of closing. The amount of outstanding principal and the balloon payment amount are the last two numbers that appear on the Mortgage Disclosure. The due and unpaid balloon payments are also referred to as the Adjustable Rate Mortgages or ARM.

If the loan was procured by the home equity, then the lender should provide you a Mortgage Disclosure with the closing cost at the time of purchase. Your lender should provide you with three business days after closing to give you a final value of the loan. The amount of money you will be receiving from the mortgage loan is called your origination points. If the amount of your mortgage points at closing equals the total amount of your loan principal, then you have received your loan. If the number of points is greater than the mortgage loan principal, then you have paid origination points and your mortgage is a bad credit mortgage. Your mortgage is a poor credit mortgage when the mortgage lender extends a loan to you for more than the amount of your home equity.

The Mortgage Disclosure will include the amount of the loan principal, total mortgage payment, monthly mortgage payments, principal plus points paid and the remaining loan balance at the time of closing. If you are refinancing your home mortgage, then the Disclosure will include the details of your new interest rate as well as the details of your new repayment terms. It will also contain the amortization schedule and the loan term. This is important to your mortgage interest when you refinance as this is a significant factor in determining the total amount of your monthly mortgage payments.

There are certain things that you should know when it comes to your mortgage closing disclosure and the prepayment penalty. You have three business days after your first payment of funds to redeem any prepayment penalty that may be imposed on your account. You also have to settle your debt accounts as soon as possible after you close your mortgage loan. The prepayment penalty is calculated based on the total amount of the loan, including any penalties and fees. This calculation takes into account the current date on your mortgage loan invoice, your balance, the loan amount and the date that your first payment is due.

The prepayment penalty is in addition to any other charges and fees that may be imposed on your account during the mortgage closing process. In most states, borrowers must pay one of two types of fees: a service charge and a document fee. The service charge is applied to all mortgage services that are required by the lender. The document fee is applied to the mortgage closing, along with any title insurance and legal costs, to ensure that the transaction is legal and proper.

The prepayment penalty that you must pay is based on a percentage of the outstanding balance. The penalty starts off at one percent and increases by another percent per day until it reaches ten percent. If your balance goes above the one percent threshold, you will have to pay the whole amount and any extra will be applied to the penalty. The prepayment disclosure must be provided to you within three days prior to your home closing.

This disclosure is referred to as the "third party disclosure". This means that the lender is not obligated to disclose the third party's name. This percentage point may change from one state to another. You can check your state laws for the exact percentage point.

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