Within the Loan Terms section, how is the ‘Can this amount increase after closing’ column of Principal and Interest row completed on the Loan Estimate and Closing Disclosure for construction transactions with an Application Received Date on or after 10/1/2018?

Comment 7(iv) within Appendix D of Regulation Z requires that ‘Yes' is disclosed for ‘Can this amount increase after closing?’ regardless of the transaction being fixed or variable rate because payments may increase based on increases in advances, and the completion of the 4 bullets described below.

• Adjusts every _______ starting in ________

  The principal and interest payment amount disclosed is based on the assumption, found in Appendix D, that 50% of the loan proceeds are advanced at consummation. This bullet discloses the earliest month or year that the borrower may see a change in the payment amount. Since the timing and amount of advances is unknown, the earliest possible month or year is the first payment date assuming all of the loan proceeds are advanced before first payment date.

  For each construction loan the bullet is completed as follows based on the Interest Payment Frequency:

  • ‘Adjusts every month starting in month 1’ when the Interest Payment Frequency is Monthly
  • ‘Adjusts every 3 months starting in month 3’ when the Interest Payment Frequency is Quarterly
  • ‘Adjusts every year starting in year 1’ when the Interest Payment Frequency is Annually
• Can go as high as ______ in ______

  This bullet discloses the maximum payment amount that can occur over the life of the loan and the month or year when the maximum payment can be reached. For each construction loan, the maximum payment amount is based on all of the loan proceeds being advanced and the maximum interest rate than can occur.

  On the Loan Definition page, when Construction Note Type is Construction and Permanent Note and:

  • A single fixed interest rate is applicable to the transaction, the maximum payment will always be equal to the amount of the principal and interest payment made in the permanent phase.
  • A fixed interest rate applies in the construction phase and a variable interest rate applies in the permanent phase, the maximum payment amount may occur in either phase depending on the applicable interest rates.
• Includes only interest and no principal until ______

  This bullet discloses the month or year that interest only payments are made through and is not at date. It is a month or year. For example, if there are 12 monthly interest-only payments, the bullet will state 'month 11.'

• See AP Table on page _____ for details

  On the Loan Estimate the reader is referred to page 2 and on the Closing Disclosure the reader is referred to page 4.