TILA (Truth in Lending Act)
Definition
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
Example
A lender advertises "Only $1,500 per month!" This monthly payment is a trigger term under Regulation Z. The ad must also disclose the APR, number of payments, amount of down payment, and total of all payments. Failure to include these disclosures violates TILA.
Exam Tip
Know the trigger terms for advertising: down payment, monthly payment, number of payments, interest rate, or finance charge. If ANY trigger term appears, ALL credit terms must be disclosed. The APR is NOT a trigger term—it can be stated alone without triggering full disclosure. Remember: 3-day right of rescission applies to refinances, NOT purchase loans.
Related Financing Terms
Conventional Loan
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
VA Loan
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
Fixed-Rate Mortgage
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Loan-to-Value Ratio (LTV)
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
Frequently Asked Questions
Test Your Financing Knowledge
Practice with exam-style questions to make sure you can apply TILA (Truth in Lending Act) and other financing concepts.