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I have a loan officer that wants to do a construction to perm with a construction period of 9 mo. at one rate and a perm. phase of thirty yrs. at a different fixed rate. Looks like a step rate but when we look at examples we see products when the rate is not going to change upon conversion and when the rate is unknown upon conversion. Ours is going to change and is known. We’ve been playing with this in Laser Pro but not sure we’re on the right track. Any suggestions as to how to set this up correctly?
Section 1026.37(a)(10)(I)(B) defines a step rate product as a transaction where the interest rate will change after consummation and the rates that will apply and the periods for which they will apply are known at consummation. You have a step rate product.
Please note the Commentary to Appendix D – 7.iii states, “If the legal obligation for a loan secured by the consumer’s principal dwelling provides that the permanent financing interest rate may adjust when the construction financing converts to permanent financing, and such adjustment to the interest rate results in a corresponding adjustment to the payment, the creditor provides the disclosures pursuant to § 1026.20(c), but not (d), if the interest rate for the permanent phase will be fixed after the conversion.” This means the transaction is an ARM and an ARM rate change notice is needed upon conversion.
You will have to check with Laser Pro regarding the set up of their product.
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