The Truth in Lending Statement was a federally mandated disclosure that mortgage lenders began including in loan documents to identify specifics about the loan that they would just as soon you not know. To create a mutually beneficial playing field for borrower and lender, the document is drafted with vague wording and partial information. The benefit seems to lean more toward the lender.
The prepayment penalty possibility is not properly stated or defined on the Truth in Lending statement. The boxes give two distinct choices, the buyer may have to pay a penalty for early repayment, or the buyer will not have to pay a penalty. Further, if the prepayment penalty is going to be charged, the word may is not very distinctive. Nor does the document go on to properly define what the penalty is so that buyers have a complete grasp of how long they are stuck with the loan, even if it is only for a portion of the full term.
Another fault with the Truth in Lending statement is that it calculates a blanket Annual Percentage Rate (APR) for a fixed term, taking several terms for granted. One of them is that you will not sell the home and pay off the loan early. Another is that you will not refinance the loan at a new rate, or whether a cash-out refinance might make a difference. Of course that cannot always be anticipated but if you have a general idea how long you will be in the home and it is less than 30 years, lenders should be able to configure the APR according to a borrower’s needs according to how long they intend on being in the home, offering the borrower the ability to correctly determine which lender is really offering the best deal.