Mortgage disclosure expressing scheduled lifetime interest as a percentage of the loan amount.
Total Interest Percentage (TIP) is the scheduled interest over the full mortgage term expressed as a percentage of the loan amount, using the assumptions required for the disclosure.
TIP appears on page 3 of the standard Loan Estimate and page 5 of the Closing Disclosure. It is a lifetime-interest comparison measure, not an annual interest rate.
TIP makes the effect of rate and loan term easier to see. A longer term can lower the required monthly payment while producing a much larger lifetime-interest percentage because the balance remains outstanding longer.
A TIP above the note rate or APR is normal because the measurements use different time frames. The Interest Rate and Annual Percentage Rate (APR) are annual rates. TIP accumulates scheduled interest across the full term and compares that total with the original loan amount.
TIP should not be used alone to choose a mortgage. It generally does not include upfront fees other than applicable prepaid interest, while APR incorporates specified finance charges. A loan can therefore have a lower TIP but higher upfront costs.
Borrowers first encounter TIP while comparing Loan Estimates. Because each estimate uses a standardized location and disclosure method, TIP can help compare similar loans with different rates or terms.
The final TIP appears in the Loan Calculations table on the Closing Disclosure. The borrower should compare it with the earlier estimate, especially if the rate, term, loan amount, mortgage structure, or closing date changed.
Here, I_s is scheduled interest over the loan term under the required disclosure assumptions and L is the loan amount. Applicable prepaid interest is included in the interest total.
Suppose a $300,000 fixed-rate mortgage has $240,000 of scheduled interest over its full term:
An 80% TIP means the scheduled lifetime interest equals 80% of the original loan amount. It does not mean the note rate is 80%, and it does not include the $300,000 principal repayment in the percentage.
| Assumption | Why actual interest can differ |
|---|---|
| Every payment is made in full and on time | Late or missed payments change the actual loan history |
| No extra principal is paid | Extra principal can reduce later interest and shorten payoff |
| The loan remains outstanding for the full term | Sale or refinance ends the original schedule early |
| Required adjustable-rate assumptions are used | Actual future ARM rates and payments can be higher or lower |
| The disclosed loan amount and closing timing remain final | Changes can alter scheduled interest and prepaid interest |
| Measure | Unit | Main question answered |
|---|---|---|
| Note Rate | Annual percentage | What contract rate calculates interest? |
| APR | Annual percentage | What annualized rate reflects interest and specified finance charges? |
| TIP | Full-term percentage of loan amount | How large is scheduled lifetime interest relative to the amount borrowed? |
| Total Mortgage Interest | Dollar amount | How much interest is projected or paid over a stated period? |
| Total of Payments | Dollar amount | How much principal, interest, mortgage insurance, and loan cost is scheduled under the disclosure? |
TIP differs from Interest Rate because the interest rate applies annually to the outstanding balance. TIP compares full-term scheduled interest with the original loan amount.
It differs from APR because APR is an annualized credit-cost measure that incorporates specified finance charges. TIP is not annualized and is focused on scheduled interest.
It differs from Total Mortgage Interest because TIP is a percentage while total interest is a dollar amount over a stated period.
It differs from Total of Payments because total of payments includes principal and other specified costs rather than interest alone.
$300,000 loan?
It means the scheduled lifetime interest is $240,000, assuming the disclosure schedule is followed.