1. What Is Rate Spread?

Rate Spread (RS) is the difference between a loan's Annual Percentage Rate (APR) and the Average Prime Offer Rate (APOR) for a comparable transaction. It's a key metric used in mortgage lending to identify higher-priced mortgage loans under regulatory requirements.

2. How Does The Calculator Work?

The calculator uses the simple formula:

Where:

• \( APR \) — Annual Percentage Rate (%)
• \( APOR \) — Average Prime Offer Rate (%)

Explanation: The rate spread represents how much higher a loan's interest rate is compared to the average prime market rate for similar loans.

3. Importance Of Rate Spread Calculation

Details: Rate spread calculation is crucial for regulatory compliance under HMDA (Home Mortgage Disclosure Act) requirements. It helps identify higher-priced mortgage loans that may trigger additional consumer protections and reporting requirements.

4. Using The Calculator

Tips: Enter both APR and APOR as percentage values. The calculator will compute the difference between these two rates to determine the rate spread.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a high rate spread?
A: Typically, a rate spread of 1.5 percentage points or more for first-lien loans (or 3.5 points for subordinate-lien loans) above APOR triggers HMDA reporting requirements.

Q2: Where can I find APOR values?
A: The Federal Financial Institutions Examination Council (FFIEC) publishes APOR tables weekly based on mortgage pricing surveys.

Q3: Does rate spread apply to all loan types?
A: Rate spread calculation primarily applies to closed-end mortgage loans secured by a first or subordinate lien on a dwelling.

Q4: How often should rate spread be calculated?
A: Rate spread should be calculated for each covered loan application to determine HMDA reporting obligations.

Q5: Are there exemptions from rate spread reporting?
A: Some loans may be exempt, such as temporary financing, construction loans, or loans made primarily for agricultural purposes.