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Odd Days Payment and APR Calculation

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Question: 
If there are odd days in the first period on a mortgage loan (i.e let's say 9 days), we charge the customer the 9 days at closing, it is considered a prepaid finance charge and will be included in the amount financed. When calculating the APR for this loan, would you also include the odd days (9) in the payment stream portion of the calculation?
Answer: 

Interest is always a Finance Charge. When a Finance Charge is collected on or before the date of consummation, it is classified as a Prepaid Finance Charge. Prepaid Finance Charges are always a deduction from the loan amount when calculating the Amount Financed. Prepaid Finance Charges should not be disclosed as a part of the payment schedule.

Section 1026.17(c)(4) of Regulation Z allows creditors to disregard any irregularity in the first payment period (i.e., "odd days") that falls within the limits set forth in that section. Nevertheless, most creditors choose to factor "odd days" into their APR calculations.

First published on 01/13/2014

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