Our HELOCs are interest only and when customers make additional payments it goes to interest accrued then principal. Our note does not specify the application order. We are being told that most banks apply excess payments to principal without applying to interest to date. I just wanted to get some feedback back on how people on here are applying HELOC payments. Thanks for your feedback in advance.

Typically, only billed interest is taken from the payment and not recently accrued interest, absence other specific language in the loan contract.

Our current HELOC agreement/disclosure is specific about how payments are applied (i.e. fees/charges, then interest, then principal, than late charges). Is this specific order of payment application a requirement in the disclosure, or can we be more general. For example, state "applied in accordance with our standard operating procedure"?

Would borrowers have a way of knowing your standard operating procedure? If not, you need to be specific.

We are changing document vendors and are wondering if we need to be specific about the order (interest, fees, principal). I did not find anything in Reg Z that requires this be disclosed.

Can we be general and state: "Lender reserves the right to apply payments received in any manner lender may choose, in lender's sole discretion, unless a specific order is required by law."

Required no. Not disclosing it might be a UDAAP probably waiting to happen. Depends on your regulator and what you are really doing and if it disadvantages your borrowers.