Q: If the amortization period of a loan is longer than the term to maturity or the initial, fixed-rate period, as applicable, (the "term") of the loan - i.e., because the loan has a balloon feature - should the lender use the term or the amortization period in determining the applicable average prime offer rate?
The term must be used. See 203.4(a)(12)
. For example, in the case of a fixed-rate loan that has term to maturity of five years and has a balloon payment because the payments are amortized over 30 years, the term of five years must be used. In the case of a variable-rate loan that has a term to maturity of 30 years and whose rate is fixed for five years and then adjusts annually over 25 additional years, the term of five years must be used.