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#784302 - 07/27/07 02:12 PM ARM disclosure
QueenBB Offline
100 Club
Joined: Jan 2006
Posts: 190
TX
We have a loan product - 3 year fixed rate (8.50%)then becomes an ARM at WSJP (8.25%)+ 2% for the remainder of the 240 months. There has been many discussions about the TIL. Can someone help me out? Is this considered a "discounted ARM"? I also assume it is a variable rate loan. I have also heard it called a hybrid ARM. What should the payment stream look like?

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Lending Compliance
#784473 - 07/27/07 03:19 PM Re: ARM disclosure QueenBB
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
You simply have 3/1 ARM where the rate is fixed for the first three years and then the rate is variable each year thereafter.

If you fix the rate a 8.5% for the first three years then you do have a discounted ARM because the initial rate is not based on the index plus the margin. Your initial rate as described above would be discounted by 1.75%.

This has to be disclosed in your ARM program disclosure and your TIL would have to show how the rate is affected at the change date based on your cap limitations.

On a $150,000 loan with a lifetime cap of 6% and a periodic cap of 2% your TIL would look something like:

36 monthly payments of $1301.73 beginning 9/1/20007 and 204 monthly payments of $1454.30 beginning 9/1/2010
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The opinions expressed are mine and they are not to be taken as legal advice.

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