Section 226.17(c)(6) permits creditors to treat multiple-advance
loans to finance construction of a dwelling that may be permanently
financed by the same creditor either as a single transaction or as
more than one transaction. If the actual schedule of advances is not
known, the following methods may be used to estimate the interest
portion of the finance charge and the annual percentage rate and to
make disclosures. If the creditor chooses to disclose the construction
phase separately, whether interest is payable periodically or at the
end of construction, part I may be used. If the creditor chooses to
disclose the construction and the permanent financing as one transaction,
part II may be used.
6-988
Part I—Construction
Period Disclosed Separately A. If interest
is payable only on the amount actually advanced for the time it is
outstanding:
1. Estimated interest—Assume
that one-half of the commitment amount is outstanding at the contract
interest rate for the entire construction period.
2. Estimated annual percentage rate—
Assume a single-payment loan that matures at the end of the construction
period. The finance charge is the sum of the estimated interest and
any prepaid finance charge. The amount financed for computation purposes
is determined by subtracting any prepaid finance charge from one-half
of the commitment amount.
3. Repayment schedule—The number and amounts of any interest
payments may be omitted in disclosing the payment schedule under section
226.18(g). The fact that interest payments are required and the timing
of such payments shall be disclosed.
4. Amount financed—The amount financed
for disclosure purposes is the entire commitment amount less any prepaid
finance charge.
B. If interest is payable
on the entire commitment amount without regard to the dates or amounts
of actual disbursement:
1. Estimated interest—Assume that
the entire commitment amount is outstanding at the contract interest
rate for the entire construction period.
2. Estimated annual percentage rate—
Assume a single payment loan that matures at the end of the construction
period. The finance charge is the sum of the estimated interest and
any prepaid finance charge. The amount financed for computation purposes
is determined by subtracting any prepaid finance charge from one-half
of the commitment amount.
3. Repayment schedule—Interest payments shall be disclosed
in making the repayment schedule disclosure under section 226.18(g).
4. Amount financed—The
amount financed for disclosure purposes is the entire commitment amount
less any prepaid finance charge.
EXAMPLE:
Assume a $50,000 loan commitment at 10.5 percent interest
with a five-month construction period and a prepaid finance charge
of 2 points.
EXAMPLE
| (A) |
(B) |
| Estimated
interest: |
$$
\text{\$25,000} \times .105 \div 12 \times 5 = \text{\$1,093.75}
$$
$25,000 × .105 ÷· 12 × 5 =
|
$1,093.75
|
$$
\text{\$50,000} \times .105 \div 12 \times 5 = \text{\$2,187.50}
$$
$50,000 × .105 ÷· 12 × 5 =
|
$2,187.50
|
| Estimated
APR: |
$$
\frac{(\text{1,093.75} + 1,000) \times 100 \div 5 \times 12}{(\text{25,000 - 1,000})} = 20.94\%
$$
(1,093.75 + 1,000) × 100 ÷ 5 × 12
(25,000 - 1,000) =
|
20.94%
|
$$
\frac{(\text{2,187.50} + 1,000) \times 100 \div 5 \times 12}{(\text{25,000 - 1,000})} = 31.88\%
$$
(2,187.50 + 1,000) × 100 ÷ 5 × 12
(25,000 - 1,000) =
|
31.88%
|
| Disclosures: |
| Amount financed |
$49,000.00 |
|
$49,000.00 |
| Prepaid finance charge |
1,000.00 |
|
1,000.00 |
| FINANCE CHARGE (estimate) |
2,093.75 |
|
3,187.50 |
| ANNUAL PERCENTAGE RATE (estimate) |
20.94% |
|
31.88% |
| Repayment: One payment of
principal of $50,000 on 12-12-80. Interest on the amount of credit
outstanding will be paid monthly. |
|
4 monthly payments of $437.50,
beginning 8-12-80, and a final payment of $50,437.50 on 12-12-80. |
|
| Total of payments (estimate) |
$51,093.75 |
|
$52,187.50 |
6-989
Part II—Construction
and permanent financing disclosed as one transaction. A. The creditor shall estimate the interest payable
during the construction period to be included in the total finance
charge as follows:
1. If interest is payable only on the amount
actually advanced for the time it is outstanding, assume that one-half
of the commitment amount is outstanding at the contract interest rate
for the entire construction period.
2. If interest is payable on the entire
commitment amount without regard to the dates or amounts of actual
disbursement, assume that the entire commitment amount is outstanding
at the contract rate for the entire construction period.
B. The creditor shall compute the estimated annual
percentage rate as follows:
1. Estimated interest payable during the
construction period shall be treated for computation purposes as a
prepaid finance charge (although it shall not be treated as a prepaid
finance charge for disclosure purposes).
2. The number of payments shall not include
any payments of interest only that are made during the construction
period.
3. The first
payment period shall consist of one-half of the construction period
plus the period between the end of the construction period and the
first amortization payment.
C. The creditor
shall disclose the repayment schedule as follows:
1. For loans under paragraph A.1. of part
II, without reflecting the number or amounts of payments of interest
only that are made during the construction period. The fact that interest
payments must be made and the timing of such payments shall be disclosed.
2. For loans under paragraph
A.2. of part II, including any payments of interest only that are
made during the construction period.
D. The creditor shall disclose the amount financed as the entire
commitment amount less any prepaid finance charge.
EXAMPLE:
Assume a $50,000 loan
commitment at 10.5 percent interest with a five-month construction
period and a prepaid finance charge of 2 points, followed by 30-year
permanent financing at the same rate with monthly amortization payments
of $457.37.
Computation
of Estimated APR
| Computation of Estimated APR |
Interest on
amount advanced |
Interest on
entire commitment |
| Estimated construction interest: |
$$
\text{\$25,000} \times .105 \div 12 \times 5 = \text{\$1,093.75}
$$
$25,000 × .105 ÷· 12 × 5 =
|
$1,093.75
|
$$
\text{\$50,000} \times .105 \div 12 \times 5 = \text{\$2,1875.50}
$$
$50,000 × .105 ÷· 12 × 5 =
|
$2,187.50
|
| Estimated total finance charge: |
|
360
× $457.37 =
Principal |
$164,653.20
−50,000.00 |
|
$164,653.20
−50,000.00 |
|
Interest on permanent financing
Construction
interest
Points |
114,653.20
+1,093.75
+ 1,000.00 |
$116,746.95 |
114,653.20
+2,187.50
+1,000.00 |
$117,840.70 |
| Estimated amount financed: |
Principal
Construction interest
Points |
$50,000.00
−1,093.75
−1,000.00 |
$47,906.25 |
$50,000.00
− 2,187.50
−1,000.00 |
$46,812.50 |
| Number of payments |
360 |
360 |
| Payment amount |
$457.37 |
$457.37 |
| First
payment period (5 ÷· 2) + 1 |
3½
months |
(5 ÷· 2) + 1 |
3½ months |
| Estimated
APR (Actuarial) |
10.75% |
11.03% |
| Estimated APR (Volume I): |
$$
\frac{11,674,695}{47,906.2} = 243.70 = \mathrm{FC/\$100}
$$
11,674,695 = 243.70 = FC/$100
|
$$
\frac{11,784,070}{46,812.50} = 251.73 \quad \mathrm{FC/\$100}
$$
11,784,070 = 251.73 FC/$100
|
47,906.2
|
|
46,812.50
|
|
First period
adjustment =
3 mo., 15 days = +5.0 |
First period adjustment
=
3 mo., 15 days = +5.0 |
| Using
365 payment line, the figure closest to 243.70 is 247.00, which corresponds
to an APR of |
11% |
Using 365 payment
line, the figure closest to 251.73 is 253.93, which corresponds to
an APR of |
11.25% |
| Disclosures |
| Amount
financed |
$49,000.00 |
$49,000.00 |
| Prepaid
finance charge |
1,000.00 |
1,000.00 |
| FINANCE
CHARGE (estimate) |
116,746.95 |
117,840.70 |
| ANNUAL
PERCENTAGE RATE (estimate) |
11% |
11.25% |
| Repayment:
Interest on the amount of credit outstanding during the construction
period will be paid monthly, followed by 360 monthly payments of $457.37,
beginning 1-12-81. |
|
5 monthly payments
of $437.50 beginning 8-12-80, followed by 360 monthly payments of
$457.37 beginning 1-12-81. |
|
| Total
of payments (estimate) |
$165,746.95 |
$166,840.70 |
