PCorder,
I’m not sure if this answers your question. If not, please provide additional info and we’ll try to help further.
Fully indexed rate means the interest rate calculated using the index or formula that will apply after recast (when your introductory period/rate will expire), as determined at the time of consummation, and the maximum margin that can apply at any time during the loan term.
Here is an example:
Intro rate = 5% for first 5 years
Index that will apply after recast (value of index at consummation) = 5%
Margin = 3%
Interest Rate Adjustment Cap = 2%
Lifetime Interest Rate Cap = 7.5%
The fully indexed rate would be 8% (5% index + 3% margin). The fully indexed rate is higher than the introductory rate in this example, so you would use the fully indexed rate to calculate payments rather than the introductory rate. In my example there is a rate adjustment cap; if the rate adjustment cap would prevent the rate from changing to the fully indexed rate you can’t consider the adjustment cap when calculating the fully indexed rate (e.g. because of the 2% adjustment cap, the rate at recast would be limited to 7% but the calculated fully indexed rate is 8% – you can not limit the fully indexed rated calculation based on the rate adjustment cap). However, at your discretion, you can take a lifetime cap into consideration when determining the fully indexed rate. Based on this example, the lifetime interest rate cap of 7.5% is lower than the fully indexed rate of 8%, so you can use the 7.5% lifetime interest rate cap at your discretion.
The commentary gives this example:
Assume an adjustable-rate mortgage has an initial fixed rate of 5 percent for the first three years of the loan, after which the rate will adjust annually to a specified index plus a margin of 3 percent. The loan agreement provides for a 2 percent annual interest rate adjustment cap and a lifetime maximum interest rate of 7 percent. The index value in effect at consummation is 4.5 percent; under the generally applicable rule, the fully indexed rate is 7.5 percent (4.5 percent plus 3 percent). Nevertheless, the creditor may choose to use the lifetime maximum interest rate of 7 percent as the fully indexed rate, rather than 7.5 percent, for purposes of § 1026.43(b)(3). Furthermore, if the creditor chooses to use the lifetime maximum interest rate and the loan agreement provides a range for the maximum interest rate, then the creditor complies by using the highest rate in that range as the maximum interest rate for purposes of § 1026.43(b)(3).