Lender’s Credit: Computation

The credit is computed as follows:

Step 1: Calculate the interest that would have been charged during the tax year if the qualifying loans had been issued at the commercial lending institution's normal fixed rate of interest at the time the loans were made.

Step 2: Determine the actual interest charged on the qualifying loans during the tax year at an interest rate of 6 1⁄2 percent.

Step 3: Subtract the interest charged as determined in Step 2 from the interest calculated in Step 1. The difference is the available lender's credit.

Normal loan fees and prepayment penalties do not affect the eligibility of a low interest loan. Loan fees financed as part of the qualifying loan are includable in computing the interest that would have been charged at the lending institution's normal interest rate as well as the actual interest charged on the qualifying loan. If a qualified loan is terminated because of a prepayment or default, interest is computed from the start of the tax year through the date of termination at both the 6 1⁄2 percent rate and the normal fixed interest rate determined at the time the loan was made. The amount by which the interest charged at the normal fixed interest rate exceeds the interest charged at 6 1⁄2 percent is included in computing the available lender's credit.