The maximum interest rate that can be charged on the LiDL portion of the loan is the Prime rate, as stated in the Midwest Edition of the Wall Street Journal, minus one percent. The rate is determined at closing and fixed for two years.
The Note must state that the LiDL rate is in effect for the first two years, after which the rate may increase to the Lender's conventional rate. The Lender may prepare two separate Notes or one blended Note.
When two Notes are written, the Note that includes the LiDL must be written at the rate of Prime minus one percent while the non-subsidized Note is written at the Lender's conventional interest rate
When the Lender chooses to prepare a blended rate Note, the interest rate is calculated by comparing the LiDL and Conventional Note size to the total project amount.
The following example demonstrates how to calculate the blended rate for a $150,000 loan where a $99,000 LiDL has been approved. The LiDL rate is Prime minus one percent and the bank's conventional rate is assumed at 10%.
LiDL portion of total loan request ($99,000/$150,000) |
66.00% |
LiDL rate assuming Prime equals 8.5% |
7.50% |
Multiply percentage by rate |
4.95% |
Conventional portion of loan request ($51,000/$150,000) |
34.00% |
Conventional rate |
10.00% |
Multiply percentage by rate |
3.40% |
The final blended rate is the sum of the LiDL and Conventional rates. The blended rate in this example is 8.35% (4.95% + 3.40%).
WHEDA accepts an interest rate equal to Prime rate minus four percent, or two percent, whichever is higher, on the Certificate of Deposit (CD) which it purchases from the lending institution. The rate is determined at closing and is fixed for two years.
The purpose of the CD is solely to enable the Lender to charge a reduced rate on the loan to the Borrower. WHEDA's CD is not collateral for the loan.
Although the maximum term of the LiDL is two years, the actual term and amortization of the loan can be longer. The term is negotiated between the Lender and the Borrower.
The Lender is responsible for underwriting the loan, making the credit decision, and determining the collateral that will secure the loan. The CD is neither collateral for the loan, nor a guarantee.
