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Disclosing APR on a Floating Rate Note

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Question: 
In disclosing APR on a floating rate note, must we disclose the highest rate possible, in another words, worst case.
Answer: 

No, refer to the commentary at 226.17(c)(1), Comment 8: Basis of disclosures in variable-rate transactions. The disclosures for a variable-rate transaction must be given for the full term of the transaction and must be based on the terms in effect at the time of consummation. Creditors should base the disclosures only on the initial rate and should not assume that this rate will increase. For example, in a loan with an initial rate of ten percent and a five percentage points rate cap, creditors should base the disclosures on the initial rate and should not assume that this rate will increase five percentage points. However, in a variable-rate transaction with a seller buydown that is reflected in the credit contract, a consumer buydown, or a discounted or premium rate, disclosures should not be based solely on the initial terms. In those transactions, the disclosed annual percentage rate should be a composite rate based on the rate in effect during the initial period and the rate that is the basis of the variable-rate feature for the remainder of the term. (See the commentary to Sec. 226.17(c) for a discussion of buydown, discounted, and premium transactions and the commentary to Sec. 226.19(a)(2) for a discussion of the redisclosure in certain mortgage transactions with a variable-rate feature.)

First published on BankersOnline.com 8/02/10

First published on 08/02/2010

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