Posted By: Jan94
HELOC and APR Calculation - 12/11/06 11:11 PM
The bank is offering a new product that involves a master HELOC (variable rate)in addition to allowing the borrower to elect up to 3 fixed rate options off of the HELOC. Every time the borrower exercises one of the FR options, the borrower will be required to pay a $50 fee. The fee is not advanced on the line and will be billed to the customer. The FR option is a "loan" off of the line with principal and interest payments. The borrower will receive a separate periodic statement for the HELOC and a separate billing statement for each FR option. We are having differences of opinion on whether the $50 FR option has to be included in the APR calculation. One group states it is a prepaid finance charge and should be in the APR, but our attorney has indicated that this product is covered under the open-end requirements and all APR calculations would be covered by 226.14. The FR option agreement provides that the APR calculation includes interest only and not other costs. I think the other group is confusing this with a closed-end loan which would have different APR calculation requirements. Footnote 33 to 226.14(c)indicates that if a finance charge is imposed during the billing cycle that includes a loan fee, points, or similar charge that relates to the opening of the account, the amount of the charge would not be included in the calculation of the APR. The FR option fee is not to open the HELOC but it is to exercise the option. Are we ok with not including the $50 fee in the FR option APR calculation? Thank you.