Truth in Lending and private mortgage insurance

Federal protections for New York borrowers

Truth in Lending requires meaningful disclosure of consumer credit costs. It applies to covered loans in New York. The note interest rate prices interest on the balance; the annual percentage rate, or APR, expresses the cost of credit as a yearly rate including interest and certain other finance charges. APR is not simply the note rate, and it does not include every closing expense. Compare similar loan terms as well as APR. The finance charge is a dollar cost of credit; total of payments combines the amount financed and the finance charge. Required disclosures also address payment schedules, security interests, late charges, prepayment terms, and whether a residential mortgage can be assumed.

Disclosure and cancellation clocks

For a mortgage subject to the integrated disclosure rules, the lender must deliver or mail the Loan Estimate within three business days after receiving the application. The consumer must receive the Closing Disclosure at least three business days before consummation, when the consumer becomes contractually obligated on the credit transaction. These are different clocks and different documents.

A qualifying nonpurchase loan secured by the borrower's principal dwelling, such as a refinance with a new lender, generally carries a right to rescind through midnight of the third business day after the latest of consummation, delivery of the rescission notice, or delivery of material disclosures. A mortgage used to purchase that home does not carry this federal three-day rescission right. Do not confuse preconsummation disclosure review with postconsummation rescission.

Private mortgage insurance

Private mortgage insurance, or PMI, protects the lender against borrower default; it does not insure the borrower's home against fire. Conventional loans with less than twenty percent down commonly require it. Government mortgage insurance is a different program. The ordinary cancellation rules below concern covered borrower-paid PMI; high-risk loans and other excluded arrangements require separate treatment.

At eighty percent of original property value, reached through scheduled or actual principal reduction, a borrower can request cancellation, subject to the applicable conditions. A written request goes to the servicer. The borrower needs a good payment history, current payments, and any required evidence that property value has not declined and certification that there is no subordinate lien. Appreciation alone does not establish this original-value trigger.

Automatic termination ordinarily occurs when the scheduled balance reaches seventy-eight percent of original value, if payments are current. If delinquent at that date, termination occurs on the first day of the first month after the borrower becomes current. If PMI has not ended earlier, final termination follows the midpoint of the amortization period on the first day of the next month, provided payments are current. An agreed loan modification requires recalculating the relevant dates. Unearned premiums must be returned within forty-five days after cancellation or termination.

For a home with an original value of $400,000, eighty percent is $320,000 and seventy-eight percent is $312,000. The first threshold supports a qualifying request; the second is the scheduled automatic-termination threshold.