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c. Interest Rate Options (04/29/2024)
i. Definitions
Fixed Rate refers to an interest rate that is fixed over the life of the HECM.
Annually Adjustable Interest Rate refers to an interest rate that adjusts annually with a 2 percent annual cap and a 5 percent lifetime cap.
Monthly Adjustable Interest Rate refers to an interest rate that adjusts monthly. The maximum lifetime Note rate may not be more than ten percent higher than the initial Note rate.
ii. Standard
The Mortgagee and Borrower must agree upon the interest rate. The Mortgagee may offer a fixed rate HECM and/or an adjustable rate HECM.
The Mortgagee may only offer a monthly adjustable rate when the Mortgagee also offers an annually adjustable rate HECM.
Periodic adjustments in the Note rate must correspond to the upward and downward change in the index, except that downward changes in the current index will not result in an index figure that is less than zero.
The Mortgagee must provide the Borrower with a written explanation of any adjustable rate features of a HECM. The explanation must include the following items:
• circumstances under which the rate may increase;
• any limitations on the increase and the effect of an increase; and
• Truth in Lending Act (TILA) pre-loan disclosures.