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When it comes to the Projected Payments section on page one of the Closing Disclosure, there are two types of information included. The top half is about what makes up the loan payment, so it discloses, for example, the amount of principal and interest, mortgage insurance, and escrow, as applicable. The bottom half addresses any estimated taxes, insurance, and assessments. Basically, it’s telling the borrower that the loan isn’t the only cost associated with the “dirt” being used as collateral.
Jerod walks through this section line by line in the video.
Published
2022/03/21
Transcript:
Which begins on page number 24. This would be the lower portion on page one of the closing disclosure. There are really two things going on here in the projected payments area. The top half essentially is about your loan. It's going to be the principal and interest, the mortgage insurance, and the escrow payment, all nicely itemized and then totaled up. And then the bottom portion, it says, all right, you've got a loan secured by dirt. The loan is not your only cost here. There are taxes, insurance, and assessments associated with the dirt that you're using as collateral in connection with this transaction. And we're going to outline what those costs are and what they represent in this section. That's the 10,000-foot view of the projected payment section. Let's go a little deeper and go line by line in here. We're going to go to page number 25 and the payment itemization.
So there are three different examples up here on the screen. They're on pages 25 and 26 in your materials. If you have a fully amortizing fixed-rate payment, it's going to look a lot like the top one here, that's a seven-year loan that fully amortizes. If there's an interest-only feature, you have to state interest only in parentheses underneath the payment in the table here. They need to know that there's an interest-only feature tied to the payment in this respective column. And then if it's a more complicated product like an adjustable rate or adjustable payment loan, this section gets a little more complex. Page number 26 shows us an example of that. Essentially, after there are changes in relation to the payment, there needs to be a table that shows what that updated number is in that year in which the payment changes. You're limited to four columns here. Systems should be programmed to do that.
Essentially you show all the changes up until the fourth column. The fourth column represents the rest of the loan term, as the loan pays out through that. So you could have multiple changes, which are going to lead to a larger range of numbers, potentially in that fourth column. Below the principle and interest payment on page 27, our next item is mortgage insurance. So if your loan has mortgage insurance, that number needs to be represented in the respective payment call.
Now some unique instructions occur within this mortgage insurance area. If there is no mortgage insurance that will ever be paid in connection with the transaction, you're going to disclose zero in the mortgage insurance line. If you do have mortgage insurance, and you're obviously going to list that number, but the year following the year in which the mortgage insurance automatically terminates must be designated by a separate column with a dash in the mortgage insurance line like what you see on the screen or in letter A on page number 27. And then that way everybody that looks at a closing disclosure and sees a dash will understand that that's the year following the year in which mortgage insurance automatically terminated.
Page 28 brings us next to the estimated escrow line. And so if there's no escrow, that's going to be required in connection with this transaction, it's going to be a zero. But if there is escrow, right, what you're required to do is put the monthly inflow into the escrow account that's anticipated with the transaction into each one of the columns. Now the good news is while you may have multiple columns, the escrow amount, the inflow into the escrow that you're disclosing here, will never be adjusted in subsequent columns. It's going to be a straight line, just like what you see here on the screen.
It's always 206.13 for this transaction, even though we know as being part of the industry that taxes insurance often goes up, you don't have to assume and estimate higher numbers when we have additional columns represented in the projected payments area of the disclosure. The next few pages have some totals. They're just showing you step by step, kind of how you get to some of these numbers. What I want to do is have you go to page 31 and I want to share with you balloon payment and single payment loan requirements, as it relates to the projected payment area.
So if we're doing a balloon payment, that means there are some other regular payments followed by a balloon at the end of the loan. If we're doing a single-pay loan, there's only ever going to be one final payment, both a balloon payment and a single-pay loan payment are disclosed the same way. There's a column that needs to be included that states final payment. Whether it's a balloon or a single-pay loan, you'll have a final payment designated in a column that is going to show you that that's how this thing carries out through maturity. Page number 31 shows us those numbers. That number there should correspond back to the loan term section in the balloon payment line that we have there. That takes care of the top, the loan portion in the projected payments area.
