Compliance Q&A: HMDA and Interest-only Loans


I have a HMDA question about construction loans. Our construction loans are 360 months plus 9 months interest. They are construction to perm. The first 9 months are interest only and then the 10th month includes principal &interest. Would we report this on HMDA as an interest-only loan?


If the loan is a single transaction–a construction-to-perm loan (one closing)–our interpretation is that you would report it as having an interest-only feature.  If this was two transactions, a construction-to-perm loan with two closings, then you would only report on the perm portion of the loan.


The requirements of this part do not apply to: Temporary Financing…

12 CFR § 1003.3(c)(3)

A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.

Commentary to 12 CFR § 1003.3(c)(3)-1

Whether the contractual terms include or would have included any of the following: (ii) Interest-only payments as defined in Regulation Z, 12 CFR 1026.18(s)(7)(iv);

12 CFR § 1003.4(a)(27)

The term ‘interest-only’ means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; an ‘interest-only loan’ is a loan that permits interest-only payments.

12 CFR § 1026.18(s)(7)(iv)

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