QUESTION: We have an ARM with an initial term of 65 months and variable every 3 years thereafter. How would this product be quoted?
ANSWER: If the introductory period is 65 months, and if the rate can adjust every three years thereafter, and if there are no features to disclosure, then the product description would be 5.42/3 Adjustable Rate.
We have a balloon loan product that is amortized over 30 years but the balloon payment is due in month 62; this would just be disclosed as “Year 5 Balloon Payment, Fixed Rate”, correct? All of my resources I am using to write my procedures state that the balloon payment should be disclosed as “the year the payment is due”. We wouldn’t break that down to be 5.17 Balloon Payment because the balloon isn’t due until month 62, correct?
3. Periods not in whole years.
i. Terms of 24 months or more. For product types and features that have introductory periods or adjustment periods that do not equate to a number of whole years, if the period is a number of months that is 24 or greater and does not equate to a whole number of years, § 1026.37(a)(10) requires disclosure of the whole number of years followed by a decimal point with the remaining months rounded to two places.
None of the examples in the regulation or in the Commentary and none of the sample forms include an example that contains a balloon period that is not an exact number of years. But the Comment cited above indicates that the balloon period should be stated as 5.17 for your example when the term is not a whole number of years and the term is 24 months or more.