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What is the Closing Disclosure for a Mortgage

What is the Closing Disclosure for a Mortgage

    • The Purpose of the Closing Disclosure
    • According to mortgage industry regulations, the lender must provide a Closing Disclosure to the borrower that outlines the final, actual terms of you loan including mortgage rate, closing costs and loan features at least three business days prior to the closing.  For example, if the borrower received the closing disclosure on a Monday, the earliest the mortgage could close is Thursday.  Typically the borrower receives the Closing Disclosure when he or she signs loan documents prior to the mortgage closing.  

      The purpose of the Closing Disclosure is for borrowers to understand how and why their mortgage terms changed as compared to the terms the lender offered at the beginning of the mortgage process. The Closing Disclosure outlines what loan terms can change and by how much as a way to protect borrowers against a lender bait and switch. A bait and switch is when a lender promises you an attractive set of mortgage terms to win your business even though they know they cannot deliver those terms. The lender attempts to change the terms, such as charging you a higher mortgage rate or closing costs, toward the end of the mortgage process when borrowers are under pressure to close their loan. The Closing Disclosure is supposed to reduce these lender tactics by providing more information to borrowers.

      Because the Closing Disclosure must be provided no less than three days prior to mortgage closing, it could extend the amount of time it takes to process and close your mortgage.  For example, all parties may be ready to close the mortgage but if the Closing Disclosure has not been delivered to the borrower then the mortgage cannot be finalized.  Borrowers should keep in mind the three day Closing Disclosure waiting period when determining how long it will take to process and close their loans.

    • What Borrowers Should Know About the Closing Disclosure
    • The Closing Disclosure must be delivered by the lender to the borrower in-person or by email or mail at least three business days prior to the mortgage closing.  If mailed or emailed, the consumer is considered to have received the Closing Disclosure within three business days after the document is delivered or placed in the mail.  For example, if the lender mails the closing disclosure to the borrower on a Monday, the borrower is considered to have received the closing disclosure on Thursday and the earliest the mortgage could close is the following Monday (assuming Saturday counts as a business day).

      The settlement agent (also known as a closing agent) that administers the mortgage closing process and transfer of funds may provide the Closing Disclosure to the borrower on behalf of the lender; however, the lender is legally responsible for for the Closing Disclosure. The Closing Disclosure must be provided separately to each borrower who has the legal right to cancel or rescind the mortgage prior to closing.

      Lenders are required to issue a revised Closing Disclosure if certain changes occur to the mortgage terms after the first Closing Disclosure was issued that cause it to become inaccurate. Below, we outline the three changes that occur before mortgage closing that require a new three business day waiting period after the revised Closing Disclosure is issued.  All other changes changes that occur before closing require a revised Closing Disclosure to be issued but do not require a new three day waiting period.

      • The Annual Percentage Rate (APR )increases by more than 1/8 of a percent for a fixed rate loan or 1/4 of a percent for adjustable loans. An increase in APR could be caused by an increase in interest rate or closing costs
      • The loan product changes. For example, the borrower switches from a fixed rate mortgage to an adjustable rate mortgage
      • A prepayment penalty is added. Adding a prepayment penalty at the end of the mortgage process is a red flag for borrowers

      Lenders must issue a revised Closing Disclosure if an event occurs within 30 days of the mortgage closing that causes the Closing Disclosure to be inaccurate and results in a change to a cost paid by the borrower.  The revised Closing Disclosure must be provided to the borrower no later than 30 calendar days after the lender becomes aware that the event occurred.

    • How Borrowers Can Use the Closing Disclosure
    • The borrower should use the Closing Disclosure document to verify that he or she is receiving a mortgage at the terms agreed to at the start of the process.  At the beginning of the mortgage process the lender provides the borrower a Loan Estimate that outlines a good faith estimate of key mortgage terms such as interest rate and closing costs.  Prior to your mortgage closing, you should compare the Closing Disclosure with the Loan Estimate to ensure that your final, actual mortgage rate and closing costs did not increase significantly as compared to the initial terms provided in the Loan Estimate.

      If there are meaningful discrepancies between the Closing Disclosure and Loan Estimate and the final mortgage terms have changed or increased significantly, then ask the lender for an explanation as this could be a sign that you are getting ripped off. You should cancel (also known as rescind) the mortgage if you are not satisfied with the lender’s explanation and the discrepancies cannot be resolved. You can cancel your mortgage at any time before you sign loan documents and you are free to work with a different lender. Although you may be out non-refundable costs such as your appraisal fee and certain lender fees, canceling a bad mortgage will save you much more money over the life of the mortgage.

    • Great Mortgage IdeaPlease note that for a mortgage to purchase a home, borrowers cannot cancel the mortgage after they have signed loan documents
    • One way to avoid potential negative surprises is to lock your mortgage. That way, all key terms and costs are agreed to by you and the lender at the start of the process and remain unchanged through the closing of your mortgage.

    • Page-By-Page Breakdown of Closing Disclsoure
    • The Closing Disclosure contains much of the same information as the Loan Estimate although the information is presented in a somewhat different layout.  We summarize each page of the Closing Disclosure  below.

    • Page 1 of the Closing Disclsoure
      • Summary information about the borrower and the mortgage
      • Key loan terms such mortgage amount, interest rate and monthly principal and interest (P&I) payment
      • Projected payment included taxes and insurance and if this payment can change over time
      • Costs at closing which includes the final closing costs and cash to close figures
    • Page 2 of the Closing Disclosure
      • A breakdown of all transaction costs including all closing costs. In a purchase transaction this page also includes costs typically paid for by the seller including property transfer taxes and real estate commissions
    • Page 3 of the Closing Disclosure
      • A Calculating Cash to Close table that outlines the total amount of money including total closing costs and down payment that the borrower must contribute to close the transaction. This table also indicates if the figures changed as compared to the Loan Estimate
      • A Summaries of Transactions Table that outlines the transaction from the perspective of both the buyer and seller including the total amount of money required from, or received by, each party at closing
    • Page 4 of the Closing Disclosure
      • A summary of loan disclosures that outline the key features of the mortgage including:
    • Assumption
      • Indicates if you can transfer the mortgage to a third party without permission of the lender
      Demand Feature
      • If your loan has a demand feature, the lender can require the borrower to pay off the mortgage before the end of the mortgage term under specified circumstances
      Escrow Account
      • Indicates if the borrower has an escrow account (also called an impound or trust account) and the costs for the items included in the account
      • Some borrowers are required to pay certain monthly expenses such as homeowners insurance and property tax into an escrow account on a monthly basis along with the mortgage payment
      Late Payment
      • Indicates when your monthly mortgage payment is considered late (how many days) and what the penalty is
      Negative Amortization
      • Indicates if your mortgage balance can negatively amortize, or increase, over the term of your mortgage
      • Most mortgage do not negatively amortize
      Partial Payments
      • Indicates if your lender accepts partial mortgage payments
      Security Interest
      • Indicates the property used as security for the mortgage
      • If you do not make your mortgage payments you could lose this property
    • Page 5 of the Closing Disclosure
      • Summary contact information about the key parties involved in the transaction including the lender, mortgage broker (if applicable), real estate brokers and settlement (closing) agent
      • A summary of loan disclosures including information about the appraisal report, mortgage contract, foreclosure liability, refinancing the mortgage and the interest expense tax deduction
      • A table that summarizes the total amounts the borrower pays over the course of the mortgage including:
    • Total of All Payments
      • The total of all scheduled payments that you will pay over the term of your mortgage (total interest, principal, mortgage insurance and mortgage costs)
      Finance Charge
      • The amount of money the mortgage will cost the borrower over the term of the mortgage
      • The total of all scheduled interest payments plus all lender costs
      Amount Financed
      • The mortgage amount available to the borrower after paying any upfront finance charge
      • This figure typically matches your mortgage amount
      Annual Percentage Rate (APR)
      • In short, the APR represents what your mortgage interest rate would be if it included all up-front lender and closing costs, such as points and origination and processing fees, in addition to interest expense
      • The APR provides another way for you to review and compare mortgage fees
      • If the APR is close to your interest rate then you know that the lender and mortgage costs are relatively small. If the APR is much higher than your interest rate then you know that the lender and mortgage costs are relatively high and you may want to negotiate lower costs or change lenders
      • We provide a comprehensive explanation and example of the APR on FREEandCLEAR
      Total Interest Percentage (TIP)
      • Indicates the the total amount of interest that you will pay over the mortgage term as a percentage of your loan amount
    • Rate Details*
      Loan Program:  
      Monthly Payment:  
      APR:  
      Rate:  
      Points  More Info:
      Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
       
      Total Lender Fees:  
      Loan type:  
      Property Value:  
      Loan to Value:  
      Credit Rating:  
      Date Submitted:  
      Monthly Housing Payments
      P & I More Info
      Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
      Mortgage Insurance More Info
      Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
      (Estimated)
      Property Tax More Info
      Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
      (Estimated)
      Homeowner Insurance More Info
      Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
      (Estimated)
      Homeowner Association Fee More Info
      Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
      (If Any)
      Total Monthly Housing Payments
      Lender Fees
      Points More Info
      Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
      Origination Fee More Info
      Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
      Credit Report Fee More Info
      Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
      Tax Service Fee More Info
      Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
      Processing Fee More Info
      Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
      Underwriting Fee More Info
      Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
      Wire Transfer Fee More Info
      Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
      (If Any)
      FHA Upfront Premium More Info
      FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
      (If any)
      VA funding Fee (If any)
      Flood Fee
      Other Fees More Info

      Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

      The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

      Total Lender Fees
      *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
      Compare Mortgage Rates as of July 16, 2018
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      Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
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