If you are applying for an adjustable-rate mortgage on your primary home, federal law says the lender must hand you two things: the Consumer Handbook on Adjustable-Rate Mortgages (the CHARM booklet) and a separate loan program disclosure describing the specific ARM you are considering. The CHARM booklet requirements sit inside Regulation Z, which implements the Truth in Lending Act, and they apply before you pay any non-refundable fee or by the time you receive the application form, whichever comes first.
When You Must Receive the Documents
The timing rule has one job: get the materials into your hands before you are financially committed. That means the creditor delivers the CHARM booklet and the loan program disclosure at the time it gives you an application, or before you pay a non-refundable fee. Whichever event happens first is the deadline.
Applications that come in over the phone or through a mortgage broker get a short grace period. In that case, the lender has three business days after receiving the application to deliver or mail the booklet and program disclosure. For this three-day window, a business day is any day the creditor’s offices are open for substantially all normal functions. That is a looser standard than the calendar-based definition Regulation Z uses for rescission and Loan Estimate timing, so the count can move depending on the lender’s schedule.
Which Loans Trigger the Requirement
The rule covers closed-end, variable-rate loans secured by your principal home when the interest rate can rise after closing and the term runs longer than one year. That captures most traditional ARMs used to buy or refinance a primary residence.
Several common loans fall outside the requirement:
- Home equity lines of credit are open-end credit and follow their own disclosure rules.
- Mortgages on investment properties, vacation homes, and rental units are not covered.
- Fixed-rate mortgages, where the rate cannot rise after closing, do not require the booklet.
- Variable-rate loans with terms of one year or less fall under a different provision.
Variable-rate loans that miss these criteria still get disclosures, but under the shorter general rule in §1026.18(f)(1) rather than the full CHARM booklet package.
What the Loan Program Disclosure Must Contain
The CHARM booklet is general education about ARMs. The loan program disclosure is the product-specific companion, and you should get a separate one for each ARM you are considering. It has to cover:
- A clear statement that the interest rate, payment, or loan term can change.
- The index the lender uses, where you can look it up, and how the margin is added to calculate your rate.
- How often the rate and payment will adjust.
- Any caps or floors on how much the rate can move at each adjustment or over the life of the loan, plus rules on negative amortization or rate carryover.
- Notice when the initial rate is a discounted or “teaser” rate below the fully indexed rate, with a prompt to ask about the discount amount.
- A direction to ask about the current margin and interest rate.
The disclosure also has to include one of two illustrations. The first is a historical example using a hypothetical $10,000 loan and 15 years of actual index movement, showing how the payment and balance would have shifted. The alternative is a maximum-rate-and-payment illustration built on a $10,000 loan at the current initial rate, assuming the rate rises to every cap as fast as the program allows. Either version turns the abstract risk of a variable rate into a concrete number you can react to.
What the CHARM Booklet Itself Covers
The official booklet, published and periodically updated by the Consumer Financial Protection Bureau, walks through how ARMs work in plain language. It explains how the rate is built from an index plus a margin, what teaser rates are and why they expire, and how caps limit but do not eliminate payment increases. It covers adjustment frequency so you know when the first change hits and how often changes can happen after that.
It also gets into the ARM features borrowers most often misunderstand. Interest-only ARMs, where you pay no principal for an initial period. Payment-option ARMs, where a minimum payment can leave you owing more than you borrowed through negative amortization. Conversion options that let you switch to a fixed rate later. The cost of buying points to lower the initial rate.
The section that matters most is the one that pushes you to stress-test your own finances. The booklet asks whether you could afford the maximum possible payment on the loan if you could not refinance or sell, for example because home values dropped or your credit deteriorated. That worst-case framing is the point of the whole document. The introductory payment tells you the floor; the booklet is there to make sure you also see the ceiling.
Electronic Delivery and Multiple Borrowers
If you are applying online, the lender can send the CHARM booklet and loan program disclosure electronically along with the application, and it does not need separate E-Sign Act consent to do so. That carve-out lives in §1026.19(c) and reflects the fact that you are already interacting digitally. For applications that are not electronic, the standard E-Sign rules apply: the lender needs your affirmative consent to receive documents electronically, and you have to be able to access and keep them.
When more than one borrower is on the loan, the lender does not have to hand a copy to each of you separately. For most closed-end mortgages, giving the disclosures to any one consumer who is primarily liable satisfies the rule. The exception is rescindable transactions, where each consumer who has the right to rescind must receive the disclosures individually.
What Happens if the Lender Doesn’t Comply
A creditor that fails to deliver the CHARM booklet or the loan program disclosure faces liability under the Truth in Lending Act. In an individual lawsuit involving a mortgage on a home, statutory damages run from $400 to $4,000 per violation, on top of any actual financial harm you can prove. Courts can also award attorney fees and litigation costs. Class-action statutory damages are capped at the lesser of $1,000,000 or one percent of the creditor’s net worth.
The bigger consequence involves rescission. When a lender fails to deliver material disclosures, including information about a loan’s variable-rate feature, your right to rescind does not close after the usual three days. It can stay open for up to three years after closing. Rescission unwinds the entire transaction, which is far more expensive for a lender than paying statutory damages, and it is the real reason the CHARM booklet requirements get taken seriously.