You can find the TIP for your loan on page 3 of yourLoan Estimateor page 5 of yourClosing Disclosure. The TIP is most useful as a comparison point between different Loan Estimates.
The TIP tells you how much interest you will pay over the life of your mortgage loan, compared to the amount you borrowed. The total interest percentage is calculated by adding up all of the scheduled interest payments, then dividing the total by the loan amount to get a percentage. The calculation assumes that you will make all your payments as scheduled. The calculation also assumes that you will keep the loan for the entire loan term.
For example, if you have a $100,000 loan and your TIP is 50 percent, that means you will pay a total of $50,000 in interest over the life of the loan, in addition to repaying the $100,000 that you borrowed. If your TIP is 100 percent, that means you will pay $100,000 in interest (100 percent of the $100,000 loan amount) over the life of the loan.
If yourLoan Estimate is for an adjustable-rate mortgage (ARM), the TIP is calculated using current interest rates. The actual amount you pay could be more or less, depending on how rates change in the future.
The TIP is not the same as your interest rate, and it is not the same as the annual percentage rate (APR). The TIP will usually be much larger than either the interest rate or the APR. This is because the TIP is based on the total interest you would pay over the full term of the mortgage, while the interest rate and APR are annual rates. A $100,000 loan with a 4 percent fixed interest rate, for example, could have an APR of 4.25 percent and a TIP of 72 percent. Both numbers tell you something useful about what you will pay.
Tip: The TIP does not include upfront fees, other than prepaid interest. One loan may have a lower TIP but higher fees than another loan. The APR, by contrast, includes upfront fees. Make sure to consider all the costs before choosing a loan.
