Section 1026.17(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.
6-5988
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
1026.18(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 1026.18(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: |
|
| $25,000 × .105 ÷·
12 × 5 = |
$1,093.75 |
$50,000 × .105 ÷· 12 × 5 = |
$2,187.50 |
| Estimated APR: |
|
|
| $$
\frac{(\text{1,093.75} + 1,000) \times 100}{(\text{25,000 - 1,000})} \div 5 \times 12 = 20.94\%
$$
(1,093.75 + 1,000) × 100 ÷· 5 ×
12 =
(25,000 − 1,000)
20.94%
|
$$
\frac{(\text{2,187.50} + 1,000) \times 100}{(\text{25,000 - 1,000})} \div 5 \times 12 = 31.88\%
$$
(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 |
6-5989
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
disbursements, 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 payment 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
amortization payment.
C. The creditor
shall disclose the repayment schedule as follows:
1. For loans under paragraph A.1 of part
II, other than loans that are subject to section 1026.19(e) and (f),
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 and loans under paragraph A.1 of part II that are subject
to section 1026.19(e) and (f), 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:Consumer Financial Protection Bureau’s
Regulation Z Truth in Lending
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.
EXAMPLE
| 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
|
$$
\text{\$50,000} \times .105 \div 12 \times 5 = \text{\$2,187.50}
$$
$50,000 × .105 ÷· 12 × 5 = $2,187.50
|
| Estimated total finance charge: |
$164,653.20
−50,000.00 |
|
|
$164,653.20
−50,000.00 |
|
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
47,906.2
|
$$
\frac{11,784,070}{46,812.50} = 251.73 \quad \mathrm{FC/\$100}
$$
11,784,070 = 251.73 FC/$100
46,812.50
|
| First
period adjustment = |
First
period adjustment = |
| 3 mo.,
15 days = +5.0 |
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% |
| Computation of Estimated APR (continued) |
| Interest on amount advanced |
Interest on entire commitment |
| 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 |
