I am now confused! To determine whether to disclose that the initial rate is a premium or discount, it is being told to me in conflicting ways.

1. Initial rate = 5.0% (not based on index/margin)for future adjustments - Floor is 5.5%, adjustment period cap 2%, overall cap 6%. If index = 3.25%+margin 1% - then an initial rate of 5% would be a premium because the index plus margin equals 4.25%. This is how I have always understood it.

2. Same as above except since the floor is 5.5% the initial rate of 5% is a discount because the floor is 5.5%. Doesn't take in to account the index and margin?

3. Initial rate equals the floor - there is no discount or premium - index and margin is less than initial rate - I disagree with this

4. Initial rate is greater than the floor and index and margin. this would be a premium because the inital rate is still greater than index plus margin.

I have read and reread 1026.19(b) - commentary. It states continuously "initial rate" in reference to premium and discount rates. No mention of floor and how it would affect the premium or discount verbiage in the ARM disclosure

HELP!

1. If the floor is 5.5% then that is your fully indexed rate based on your formula which is index + margin or X whichever is greater. The floor rate would not be a premium if it exceeds the index + margin.

2. Based on the formula in #1 5% would be a discount. It's below your stated floor rate.

3. If the initial rate = the floor then there is no discount or premium.

4. That would be a premium because the initial rate is greater than your full indexed formula.