If you are applying for an adjustable-rate mortgage on your primary home, federal law entitles you to two documents before you commit any money: the Consumer Handbook on Adjustable-Rate Mortgages (the CHARM booklet) and a loan program disclosure describing the specific ARM you are considering. The CHARM booklet requirements come from Section 1026.19(b) of Regulation Z, which implements the Truth in Lending Act, and they apply to the lender at the moment you receive an application form or before you pay any non-refundable fee, whichever happens first.1
Which Loans Trigger the Requirement
The rule covers closed-end, variable-rate loans secured by your principal dwelling where the rate can rise after closing and the term runs longer than one year. That sweeps in most traditional ARMs used to buy or refinance a primary home.
Several loan types fall outside the rule, and knowing the edges matters if you are trying to figure out why a lender did not hand you the booklet:
- Home equity lines of credit are open-end credit and follow a separate disclosure regime.
- Mortgages on investment properties, vacation homes, and rentals are not covered because the collateral is not your principal dwelling.
- Fixed-rate mortgages are excluded because the rate cannot increase after closing.
- Variable-rate loans with terms of a year or less fall under the lighter disclosure provision in §1026.18(f)(1) instead.
There is one narrow exception at the top of the rule: if another federal agency already mandates equivalent variable-rate disclosures for a particular lender or transaction, those can substitute. For most residential mortgage lending, the exception rarely surfaces.
When the Lender Must Deliver the Disclosures
The timing is simple. The creditor must give you the CHARM booklet and the loan program disclosure when it provides the application form, or before you pay a non-refundable fee, whichever comes first. The point is that you receive the materials before any financial commitment.
Phone applications and applications routed through a mortgage broker get a short grace window. In that situation the lender has three business days after receiving the application to deliver or mail the two documents. For this specific three-day window, “business day” means any day the creditor’s offices are open for substantially all normal business functions. That is a looser definition than the strict calendar-based business-day rule Regulation Z uses for rescission periods and Loan Estimate timing, so do not assume the counts match.
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 are entitled to a separate one for each ARM product you are considering. Each program disclosure must cover:
- A clear statement that the interest rate, payment, or loan term can change.
- The index that drives rate adjustments, where you can look it up, and how the lender adds a margin to calculate your rate.
- How often the rate and payment will adjust.
- Any caps and floors on rate movement at each adjustment and over the life of the loan, plus rules on negative amortization or rate carryover.
- If the initial rate is discounted below the fully indexed rate, a notice flagging that fact and telling you to ask about the size of the discount.
- A prompt directing you to ask the lender for the current margin and interest rate.
The disclosure must also give you one of two concrete illustrations. The first option is a historical example using a hypothetical $10,000 loan to show how payments and the loan balance would have moved over the most recent 15 years of actual index history. The second option is a maximum-rate-and-payment scenario, again based on a $10,000 loan, assuming the rate climbs to every cap as fast as the program allows. Both exist to turn an abstract risk into a number you can look at.
What the CHARM Booklet Itself Covers
The booklet, published and periodically updated by the Consumer Financial Protection Bureau, walks through ARM mechanics in plain language. It explains how your rate is built from an index plus a margin, what teaser rates are and when they expire, and how rate caps limit (but do not eliminate) payment increases. It covers adjustment frequency so you know when to expect your first change and how often changes recur.
It also addresses features borrowers often misread. Interest-only ARMs let you pay no principal for an initial period. Payment-option ARMs allow a minimum payment so low that the loan balance can actually grow through negative amortization. The booklet describes conversion options that let you move to a fixed rate later and explains the cost of buying points to reduce your initial rate.
The most useful section pushes you to stress-test your own finances. It asks whether you could afford the maximum possible payment on your ARM if you could not refinance or sell, such as during a drop in home values or a decline in your credit. That worst-case framing is the booklet’s core purpose.
Format and Electronic Delivery
A lender can use the official CFPB version of the CHARM booklet or produce a substitute, so long as the substitute contains substantially the same information. A substitute that strips out warnings about payment shock or negative amortization is not suitable. Lenders with older printed copies may use them until stock runs out; any new print run must use the current version.
Electronic delivery is more flexible for the CHARM booklet than for many other mortgage disclosures. If you access the application electronically, the lender can provide the booklet and program disclosure in electronic form along with the application without obtaining separate E-Sign Act consent, under §1026.19(c). For applications that are not electronic, the standard E-Sign requirements in §1026.17(a)(1) apply: the lender needs your affirmative consent to electronic delivery, and you must be able to access and retain the documents.
If You Apply With a Co-Borrower
The lender does not have to hand the booklet to each applicant separately. For most closed-end mortgage transactions, delivering the disclosures to any one consumer who is primarily liable on the loan satisfies the rule. There is one exception: if the loan carries rescission rights, each consumer who has the right to rescind must receive the disclosures individually.
What a Lender Owes You If They Skip It
A lender that fails to provide the CHARM booklet or the loan program disclosure is exposed to civil liability under the Truth in Lending Act. In an individual lawsuit involving a mortgage secured by 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. In a class action, total statutory damages are capped at the lesser of $1,000,000 or one percent of the creditor’s net worth.
The bigger consequence is rescission. When a creditor fails to deliver material disclosures, which include information about a loan’s variable-rate feature, your right to rescind the transaction does not close on the usual three-day schedule. The window can stay open for up to three years after closing. Rescission unwinds the loan entirely, and that extended exposure is the real enforcement teeth behind the CHARM booklet rule.