The floor on our HELOCs is 4.00%. Our HELOC pricing is Prime + 0. Prime is now at 3.25% which obviously falls below our floor. So, the historical table does reflect the floor at 4%. However, the minimum payment example shows 3.25%. I believe this is correct but I want to make sure. Reg Z commentary 226.5b(d)(5(iii)-1 says...

"...For variable-rate plans, the example must be based on the last rate in the historical example required in section 226.5b(d)(12(xi), or a more recent rate. In cases where the last rate shown in the historical example is different from the index value and margin (for example, due to a rate cap), creditors should calculate the rate by using the index value and margin. A discounted rate may not be considered a more recent rate in calculating this payment example for either variable- or fixed-rate plans."

You need to go to 226.5b(12)(xi) and read the requirements of that section, i.e. . . . rates and payments would have been affected by index value changes implemented according to the terms of the plan. . . and shall reflect all significant plan terms, such as . . . rate and payment limitations . . . . If your rate will never reach the index plus margin based on the floor rate limitation then your minimum payment is to be based on the floor rate.

Thanks for your help with that Dan. I had read that section and the commentary, but then when I read what I quoted above, it just made me think that what the system was "automatically" putting there was okay since it matched what our pricing is today (except for the floor). I did find out they were able to override it and put the 4.00% in the payment example since that is our floor.

This also raised another question in my mind. Our product pricing is the index plus the margin - no discounts and no premiums; however, with that floor being above this at this moment since Prime is so low, does that then make this start rate a "premium" rate? We aren't intentially starting at a premium rate, it's just that way because of the fact that we have a floor that happens to be set above the index plus the margin due to how low the index is today.

Thanks again for your help.

BUMP--I have the same issue and could use guidance. Some here are saying the floor rate, which is well above the index+margin would be considered a "premium". My understanding is this is just the floor as a premium is an additional add to the rate for specific reasons and is not for the term of the loan.

Can someone please give me a clear definition of what is a premium/discount on a loan? It's not clear to me when reading REG Z and the commentary, so I must be missing something.

A premium/discount is a rate that is not based on the underlying index plus/minus the margin and is in effect for a fixed period of time. A floor rate would not be a premium, just as a rate ceiling would not be a discount, as the length of time it will impact the HELOC is undeterminable.

Thanks, Randy--you have confirmed what I thought. Is this definition in the REG or commentary? I couldn't find it at all.

I don't think you will find that it is directly addressed.

Thanks--you would think with all the other definitions they would define premium and discount. What prompted this is a colleage here attended a seminar and in the discussion, the (OTS) regulator said if the floor is higher than index+margin, it is a considered a premium. That is why I am trying to substantiate.