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Calculating APR for Construction Loans- Appendix D

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Question: 
Appendix D is used for reference in calculating an APR for construction loans. However, it states "Using the 365 payment line, the closest to $251.73 is $253.93 which corresponds to an APR of 11.25%" What payment line is this referring to and how is this converting to a 11.25 rate; are there books that this is referring to and if so, where can you obtain it?
Answer: 

For all types of closed-end loans there are 3 ways to calculate APRs:
- Volume I and Volume II
- The U.S. Rule method
- The actuarial method

Volumes I and II are books of look-up tables that were used in the early days of Reg. Z (before PCs.) Reg. Z has always permitted their use, but I can't remember the last time I heard anyone say s/he uses Volume I or II. The quoted portion of Appendix D refers to Volume I, so unless you plan to obtain a copy of Volume I (from the Bureau?) and regress to mid-20th-century calculation methodology, simply ignore this instruction.

Appendix J authorizes both the U.S. Rule and actuarial methods, but only illustrates the actuarial method. As a result, there can be no certainty about the U.S. Rule...so it's almost never used.

That leaves the actuarial method. It is the basis for virtually all automated APR calculations, including APRWIN.

When Appendix D's instructions for estimating construction phase interest are combined with APRWIN, you can calculate or verify APRs for many types of construction and construction-perm loans.

First published on 02/19/2017

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