Part II—Construction and Permanent

A. The creditor shall estimate the interest payable during the construction period to be included in the total finance charge as follows:

If interest is payable only on the amount actually advanced for the time it is outstanding, assume that one-half of the commitment amount is outstanding at the contract interest rate for the entire construction period.
If interest is payable on the entire commitment amount without regard to the dates or amounts of actual disbursements, assume that the entire commitment amount is outstanding at the contract rate for the entire construction period.

B. The creditor shall compute the estimated annual percentage rate as follows:

Estimated interest payable during the construction period shall be treated for computation purposes as a prepaid finance charge (although it shall not be treated as a prepaid finance charge for disclosure purposes).
The number of payment shall not include any payments of interest only that are made during the construction period.
The first payment period shall consist of one-half of the construction period plus the period between the end of the construction period and the amortization payment.

C. The creditor shall disclose the repayment schedule as follows:

For loans under paragraph A.1 of part II, other than loans that are subject to § 1026.19(e) and (f), without reflecting the number or amounts of payments of interest only that are made during the construction period. The fact that interest payments must be made and the timing of such payments shall be disclosed.
For loans under paragraph A.2 of part II and loans under paragraph A.1 of part II that are subject to § 1026.19(e) and (f), including any payments of interest only that are made during the construction period.

D. The creditor shall disclose the amount financed as the entire commitment amount less any prepaid finance charge.

[76 FR 79772, Dec. 22, 2011, as amended at 78 FR 80130, Dec. 31, 2013]