The bank originated a loan with a variable rate and a term of less than 12 months for the purchase of a principal dwelling and the loan is secured by that dwelling. The intent is for the borrower to pay off the loan at maturity with their annual bonus. So far I am ok, this does not met the definition of an ARM. It turns out that the borrower pays off all but $50,000 of the loan. The bank wants to renew the loan with same rate, etc. and the loan processor is telling them that they can either fix the rate on the renewal or if they keep the variable rate, it is now an ARM. I'm disagreeing in that the original loan had a term of less than one year and would be subject to the requirements of 226.18 versus 226.19 and a renewal of the original loan is not now an ARM. Am I overlooking something? Thank you for your help.

Each loan would be treated separately. With a less than 12 month term, it would not be an ARM.

I agree - we would treat this as an ARM only if the renewal or second loan was for a term greater than a year.

If you have a renewal (not a refinance as defined in Sec. 226.20(a)) of a loan that already has a VR feature, I don't see how it would be possible for it to be treated as an ARM loan. No event has occurred which would trigger new disclosures.

Thank you all for your thoughts. I'm good with the renewal but to be sure I understand, if the loan is refinanced as defined in 226.20(a), and the new maturity is still less than 1 year (meaning the original loan was less than 1 year and the "refinanced" loan is less than 1 year) it would not be an ARM?

Just checking back, not sure if I was asking an obvious question, but wanted to be sure that there wasn't a difference for a refinance vs a renewal on how it affects the term of the loan. Since the refinance is paying off a previous loan, then if the "new" or refinanced loan is less than 1 year it appears to me the loan is still not an ARM. Did I answer my own question? Thanks!

Yes - you have answered your own question.

Thank you, just needed some reassurance.