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The following is a recent question that came in during our webinar on “Regulation Z Rules for Home Equity Lines of Credit”.

Question: Our bank requires interest payments only during the repayment period. We are converting to a new doc provider and their disclosure discloses P&I on the example. Is this ok?

Answer: Your questions seems inconsistent. Typically during a repayment period on a HELOC no draws are allowed and the consumer must make payments sufficient to amortize the balance by the end of the repayment period. You state, “bank requires interest payments only during the repayment period.” Such payment would not amortize the balance at all. I suspect that if only interest payments are required, then the agreement must include a balloon payment due at the end of the repayment period.

If the new document provider’s system requires principal and interest payments, such payments would be inconsistent with the current agreement’s payment schedule. You would need to refinance the agreement and obtain the consumer’s full consent to the new agreement before you proceed.

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