The Truth in Lending Act (TILA) states that an MLO must calculate a borrower’s monthly Payment amount based on which of the following?

A mortgage loan originator (MLO) originates a 5/1 ARM where the indexed rate is likely to be higher than the introductory rate.

The Truth in Lending Act (TILA) states that an MLO must calculate a borrower’s monthly Payment amount based on which of the following?
A . Payment amount during the fixed introductory period
B . An average of the varying payment amounts over the life of the loan
C . The total amount of the payments
D . Fully indexed rate of the loan

View Answer

Answer: D

Explanation:

Under the Truth in Lending Act (TILA), for adjustable-rate mortgages (ARMs) like a 5/1 ARM, the MLO must calculate the borrower’s monthly payment amount based on the fully indexed rate, not the introductory rate. The fully indexed rate is the sum of the index and the margin at the time of origination, reflecting the potential payment increases after the introductory period ends.

This requirement ensures borrowers understand what their payments could be after the rate adjusts, helping them evaluate the true affordability of the loan.

References:

Truth in Lending Act (TILA), 12 CFR Part 1026 (Regulation Z)

CFPB ARM Guidelines