On February 23, 2022, the Consumer Financial Protection Bureau (CFPB) published Factsheet: Prepaid Interest and the General Qualified Mortgage APR Special Rule for Adjustable Rate Mortgages. Creditors that wish to make qualified mortgages (QMs) under the price-based General QM definition must calculate the annual percentage rate (APR) for loans to determine whether they satisfy the price-based General QM definition. The priced-based General QM definition contains a special rule for calculating the APR for loans where the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due. These loans are sometimes referred to as “short-reset” adjustable-rate mortgages (ARMs) and step-rate loans. This factsheet describes the interest rate that is used for calculating prepaid interest for purposes of this special APR calculation rule.
The factsheet does not present new information, but it does provide a cogent explanation of the APR calculation.