New to reporting HELOCs. Rate spread is confusing me for one of the products we have. A fixed introductory rate that changes to variable rate after one year; both APRs are disclosed. To determine rate spread, we would use the APR for the introductory rate, which is a fixed rate. What I'm not sure of is if we use the variable or fixed rate amortization type in the rate spread calculator.

What do you mean both APRs are disclosed. Why would that be the case. You have no idea what the APR is going to be in a year.

But to your question you would use the start rate compared with an APOR for one year from the variable rate table.

ii. Variable-rate transactions. For variable-rate covered loans, the term for identifying the comparable transaction is the initial, fixed-rate period (i.e., the period until the first scheduled rate adjustment). For example, five years is the relevant term for a variable-rate transaction with a five-year, fixed-rate introductory period that is amortized over thirty years. Financial institutions may refer to the table on the FFIEC Web site entitled “Average Prime Offer Rates-Variable” when identifying a comparable variable-rate transaction.

Your "fixed rate" is an introductory rate. Your product is a variable rate product.

See 5.26 Rate Spread starting on page 93 of the 2020 GIR.

Exert from page 94.

If multiple APRs are calculated and disclosed pursuant to 12 CFR 1026.6, a Financial Institution relies on the APR in effect at the time of account opening.

Thank you both. I was clear on the APR, just needed to know which table to use.

Randy, to answer your question about two APRs, the credit agreement states the rate and APR for the plan and there is a separate statement that, when selected, states the rate and APR associated with an introductory period.

ah - forgot about this - sorry.

Official Interpretation

Paragraph 6(a)(1)(ii)

Comment 10

ii. When creditors use an initial rate that is not calculated using the index or formula for later rate adjustments, the account-opening disclosure statement should reflect:

A. The initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long the initial rate will remain in effect;

B. The current rate that would have been applied using the index or formula (also expressed as a periodic rate and a corresponding annual percentage rate); and

C. The other variable-rate information required in §1026.6(a)(1)(ii).

Glad we're all good - this is a new product for me. I'm glad you questioned it and provided the reference!

Need to revisit this topic. Can either of you help clarify what the statement below is referring to with regard to calculating rate spread for a HELOC? This comes from page 94 of GIR 2020. I want to be sure we are using the correct APR for the rate spread calculation.

"If an Open-End Line of Credit has a variable rate feature and a fixed-rate feature during the draw period, a Financial Institution relies on the APR in effect at the time of account opening for the variable-rate feature. This rate for the variable-rate feature would be a discounted initial rate if one is offered under the variable-rate feature."

We have an introductory rate that is fixed for 12 months, then it goes to Prime for the remainder of the draw period, then it is fixed during the repayment period at whatever Prime is at the time. We have been using the introductory rate to calculate rate spread. What is "APR in effect at the time of account opening for the variable rate feature" referring to? Should we be calculating rate spread using Prime instead of the introductory fixed rate?

It really comes down to what is the APR on day one of the plan.

That is what I thought and what I have been doing. I still don't know what that statement refers to but I'm moving on. I appreciate your input.

It just means that even if you are offering some sort of discounted rate on the HELOC at the beginning of the loan, you still would just use that discounted rate.