Q: How is the Loan Product disclosed if the interest rate that will apply to the permanent phase is not known at consummation?
A: If the interest rate that will apply to the permanent phase is not known at consummation and the construction-permanent loan is disclosed as one transaction, the Loan Product for the transaction is disclosed as an adjustable rate product. If the interest rate that will apply to the permanent phase is unknown and the construction-permanent loan is disclosed as a two separate transactions, the Loan Product for the permanent phase is disclosed as an adjustable rate product. This is true even if, once set at the later date, the interest rate for the permanent phase would not change again. (Comment app. D-7.ii)
The loan payment features required in the Loan Product disclosure are also included in the disclosures if the interest rate that will apply to the permanent phase is not known at consummation. For example, if the loan is disclosed using a single disclosure for a combined construction-permanent financing, the introductory period disclosure would be the term of the construction phase and then the term of the permanent phase, e.g. “1/30 Adjustable Rate,” provided the construction phase has a fixed rate. If, however, the permanent phase is disclosed separately, assuming the permanent phase is a fixed rate upon conversion from the construction phase, the introductory rate disclosure would be zero followed by the term of the permanent phase, e.g., “0/30 Adjustable Rate.” These introductory rate or payment period disclosures are disclosed even if the construction phase and the permanent phase (once the interest rate is later set for the permanent phase) individually are fixed rate. (§§ 1026.37(a)(10)(iv) and 1026.38(a)(5)(iii)) As stated above, each disclosure must follow the requirement that if a transaction has more than one loan payment feature, the creditor only discloses the first feature in the order that the features are listed in the TILA-RESPA Rule.
Additionally, other adjustable rate disclosures are applicable, such as the AIR Table (§§ 1026.37(j) and 1026.38(n)).