[mdunker]

We are in the process of offering a construction to perm arm loan. I am trying to figure out what the max 5 year rate would be to qualify the customer on for these products. Does the max 5 year start at the inception of the loan or at the end of the construction term? For example I have an 8 month interest only construction period then it goes to a 5/5 arm with a margin of 2.74% and rate caps of 2% each year with a start rate of 3.84 what would the max 5 year rate be?

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[rcooper]

The construction phase (assuming it is 12 months or less) is exempt from the ATR requirements so you would base your calculation on the permanent phase.

Comment 43(e)(2)(iv)-1: For a qualified mortgage, the creditor must underwrite the loan using a periodic payment of principal and interest based on the maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due. Creditors must use the maximum rate that could apply at any time during the first five years after the date on which the first regular periodic payment will be due, regardless of whether the maximum rate is reached at the first or subsequent adjustment during the five year period.

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