A question we received from a member:
During the Compliance Masters Group meeting today Jack discussed the Rate for ARM loans and said to use the fully indexed rate. I just wanted to confirm that if our initial rate is a premium and not based off of the fully indexed rate we should put that instead, correct?
I believe you are referring to 1026.37(b)(2) of the instruction for completing the loan estimate, which states: “The interest rate that will be applicable to the transaction at consummation, labeled “Interest Rate.” For an adjustable rate transaction, if the interest rate at consummation is not known, the rate disclosed shall be the fully-indexed rate, which, for purposes of this paragraph, means the interest rate calculated using the index value and margin at the time of consummation.”
Jack was referring to a transaction in which the loan is an ARM and the interest at consummation is not known when the disclosure is made; in such a circumstance you would disclose the fully-indexed rate.
So if you know what the rate at consummation will be, you should disclose that rate. If you do not know the rate disclose the fully index-rate.