Q: How should the Interest Rate field be completed on the Loan Estimate?
A: Regulation Z has technical requirements for the completion of the Interest Rate field. While creditors should review regulatory conditions and commentary, a general description of the requirement is as follows:
The interest rate field shall reflect the interest rate that will be applicable to the transaction at consummation. In situations involving an adjustable rate transaction, if the interest rate at consummation is not known, the rate disclosed shall be the fully-indexed rate (i.e. the interest rate calculated using the index value and margin at the time of consummation.)
As the regulatory commentary addresses other situations, it is provided here for reference:
“37(b)(2) Interest rate.
1. Interest rate at consummation not known. Where the interest rate that will apply at consummation is not known at the time the creditor must deliver the disclosures required by § 1026.19(e), § 1026.37(b)(2) requires disclosure of the fully-indexed rate, defined as the index plus the margin at consummation. Although § 1026.37(b)(2) refers to the index plus margin “at consummation,” if the index value that will be in effect at consummation is unknown at the time the disclosures are provided pursuant to § 1026.19(e)(1)(iii), i.e., within three business days after receipt of a consumer’s application, the fully-indexed rate disclosed under § 1026.37(b)(2) may be based on the index in effect at the time the disclosure is delivered. The index in effect at consummation (or the time the disclosure is delivered pursuant to § 1026.19(e)) need not be used if the contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 days before consummation (or any earlier date of disclosure) in calculating the fully-indexed rate to be disclosed.”
To clarify this rule further, the CFPB's webinar (referenced below) clarified that in situations where the initial interest rate is calculated using a different formula than that used for subsequent rate adjustments, the creditor should disclose the initial interest rate.