We have agreed to release one party on an existing fixed rate home loan.The remaining customer is now going to rent the property rather than live in it.They agreed that in return for the release and due to the change in use, we are increasing the interest rate by .25. Do we have to give them a new TIL on the remaining balance and at the new rate at the time we do this?

Have you considered refinancing the deal into a new loan? Maybe even a business purpose loan?

The new transaction is to modifiy or refinance a non-owner occupied rental property - it would be exempt from Regulation Z any way you slice it.

The problenm is a refi at today's rates would mean a rate higher than just the .25 increase for the customer.

Just be sure to do a formal modification and not just go in and change the rate, otherwise, you wouldn't have the authority under your existing agreement on a fixed-rate loan.

Reg Z exempts the acquisition, maintenance or rehabilitation of a non-owner occupied rental property. This loan (refinancing if done) and or modification is for neither of those purposes. The current owner/occupant has simply decided to start renting his dwelling (agreed that in return for the release and due to the change in use,) and I assume move to another one. Where is the business purpose exemption for this refinancing and/or modification?

Now with that said, modifications do not require redisclosure unless a variable rate feature is being added that has not been previously disclosed.