Advertising a Mortgage Loan

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Question:

I am confused by the TILA rules and FTC Guidance (How to Advertise Consumer Credit) on how to advertise the following product: 10/1 LIBOR ARM. Repayments are "interest only" for 10 years with fixed rate, then for the remaining 20 years of this 30 year loan, the rate becomes variable and the loan is amortized for principal and interest payments. At a minimum, our line of business wants to advertise the amount of the monthly payment. Is this a graduated payment feature loan, or a discounted variable rate plan or something else? Any real-life examples are appreciated.

Answer:

You advertise this product just like any other ARM--include a properly calculated APR and (full) payment schedule for a representative example of the product. If the initial note rate is not equal to the "fully indexed rate", then you follow the familiar rules for disclosing a "discounted" or "premium" variable rate loan. The fact that the first 120 payments are interest-only has no special significance.

First published on BankersOnline.com 8/16/04