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Volume 2, Issue 2, 2002   Federal Reserve Bank of Dallas

Loan Example

Disclaimer: This example is presented strictly for illustrative purposes. All results disclosed by the example are estimates, and the Federal Reserve Bank of Dallas assumes no liability or responsibility for computational errors. No guarantee, explicit or implied, is made regarding its accuracy or suitability to a specific purpose.

Note: The purpose of this example is to illustrate how recent changes to Regulation Z affect high-cost home equity loans covered by HOEPA. Restrictions may apply, and results may vary depending on the borrower's data. We based our example on several assumptions:
  1. The loan is a simple-interest loan.
  2. The total amount financed was calculated using one possible formula. See how it was calculated.
  3. The amount of all fees is reasonable, and the third-party companies are not affiliated with the creditor.
  4. The term "finance charges" used throughout this example is meant to include those finance charges that could be included in the points and fees test. Not all charges included in the points and fees calculation are considered finance charges.
  5. Appraisal ($200) and optional credit life insurance ($300) were financed by the consumer at closing.
  6. Loan points ($55) and loan service fee ($100) were prepaid by the consumer at closing.
  7. Title insurance ($200), credit report ($50), flood hazard determination ($30) and pest inspection ($45) are reasonable, bona fide closing costs paid to third parties unaffiliated with the creditor.
  8. Document preparation fee ($100) paid to creditor.


Example Loan: Home improvement loan secured by the consumer's principal dwelling

Loan Data:
Loan Closing Date   April 15, 2002
Receipt of Application Date   April 3, 2002
Principal Loan Amount Paid to Consumer   $5,000
Amount of Consumer's Prior Debt Added to the Loan   $0
Other Fees Financed   $500
Total Amount Borrowed   $5,500
Lien Status   Subordinate-Lien Mortgage
Number of Payments   120
Simple Interest   14%
Disclosed APR   14.79%
Monthly Payment   $85.40
Charges paid by consumer:    
1 Loan Point
Loan Service Fee
Document Preparation
Optional Credit Life/Disability Insurance Premium
Title Insurance
Credit Report
Flood Hazard Determination
Pest Inspection

See how the changes to Regulation Z affect high-cost home equity loans:

Full text of changes to Regulation Z:

e-Perspectives, Volume 2, Issue 2, 2002

Federal Reserve Bank of Dallas Off-site page
Community Development Office Send an e-mail
P.O. Box 655906, Dallas, Texas 75265-5906
Gloria Vasquez Brown Send an e-mail
Vice President
    Nancy C. Vickrey
Assistant Vice President and
Community Development Officer
Jackie Hoyer Send an e-mail
Houston Branch
Senior Community Development Advisor
    Diana Mendoza
Community Development Specialist
Veronica Garza
Community Development Specialist
    Karen Riley
Community Development Specialist
The views expressed are the authors' and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Development Office.

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