How Much?
Anyone who has secured a mortgage to buy a home can tell you that the process can be frustrating and down-right confusing. It seems that each loan comes with its own mound of paperwork that covers every contingency you could possibly think of, but doesn’t seem to state anything in plain simple language and that’s a major problem.
According to a recent study by the FTC, required disclosure documents provided by mortgage lenders were ineffective at explaining the costs and risks of home loans. In the study, 800+ recent mortgage customers were each given disclosure forms for a hypothetical loan. About half got forms of the type currently used. The rest got prototype forms designed by the study authors to be understandable.
The study found that when given the disclosures now used:
• Half the borrowers couldn’t correctly identify the loan amount.
• Nine in 10 couldn’t figure out the total upfront cost of the loan.
• Two-thirds did not recognize that they would have to pay a penalty if they paid off the mortgage within two years. And 95% didn’t know how much that penalty would be.
• Three-quarters did not know when substantial charges for credit insurance had been included in the loan.
• One in five couldn’t correctly identify the annual percentage rate, the amount of cash due at closing or the monthly payment — or whether that payment included charges for property taxes and insurance.