APR on the Closing Disclosure

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Question:

Regarding the APR on the Closing Disclosure: our ARM rates are set at application. Our Note provides for a 45-day look-back for rate changes. I'm conflicted reading the regulation and want to verify that we should be using the index within that 45-day period before consummation to calculate the APR on the CD? The initial rate is not determined by "index + margin," but changes are based on index/margin/caps. I think they should be using the most current index when the CD is issued. Often times the application date is greater than 45 days from consummation. I believe this is the most conservative approach.

Answer:

If your start rate is not set at the index + margin at the time the interest rate is locked between the lender and the applicant, then you would need to use the index value at the time of closing or one that was within the lookback period in your note from the closing date.

See 17(c) Basis of Disclosures and Use of Estimates- Paragraph 17(c)(1) - Comment 10 and pay close attention to 10(vi).