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#81357 - 05/19/03 07:27 PM Reg Z APR Examiner 4.2

When I do an amortization under mortgage calcs in Toolbox, I end up with a balance of a few cents or sometimes under $2.00. If I add these cents to the interest it calculated plus prepaid F.C. - I get the correct fin charge on the TIL disclosure. Am I doing this correctly?

example: 120 payments @ 283.72 @ 7.125 ln amt 24,300.00 prepaids 570.14

I get int 9,745.00 plus 1.40 bal (added together 9,746.40) added to 570.14 prepaids = 10316.54 finance chg.

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Lending Compliance
#81358 - 05/19/03 08:12 PM Re: Reg Z APR Examiner 4.2
Richard Insley Offline
10K Club
Richard Insley
Joined: Oct 2000
Posts: 10,068
Toano, VA
Loan payments almost always have to be rounded to the nearer, next higher, or next lower whole cent if you are going to quote the payment in dollars and cents. This means there will be a small overage or shortage at the time the final payment is applied. Most loan production software rounds all fractions up to the next higher whole cent, and then show a smaller final payment. Other systems simply ignore the slightly irregular final payment and declare all payments to be the same dollar amount.

When you amortize a loan (including the APRX amortization routine), you must calculate the interest and round it to the nearest cent. This method almost guarantees that there will be a small difference at the end of any loan without the adjusted final payment.

Reg. Z excuses these small differences in either of two ways. First, Section 226.17(c)(3) permits you to ignore the fact that payments must be collected in whole cents. Also, you have the general Finance Charge tolerance of $10 or $100.
...gone fishing.

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