Lesson 11 of 20 · 7 min

How a rate reset actually appears on a statement

Usually as a single rate at the top of the page, describing only the rate in force at the end.

A statement is a summary document, and summarising a rate that changed mid-period requires a choice. The common choice is to print the rate in force on the closing date.

Consider a 31-day period in which the rate was 6.85 percent for twelve days and 7.10 percent for nineteen. The statement's header typically shows 7.10 percent. The interest line shows one blended figure. Neither number tells you the rate changed, when, or by how much.

This has a specific consequence for verification. If you attempt to check the interest charge using the printed rate for the whole period, your figure will not match, and the mismatch will look like an error. Computing $310,000 at 7.10 percent on an Act/360 basis for 31 days gives $1,895.31; the actual charge in the split-rate case is $1,869.47. A $25.84 gap, arising entirely from a rate change the statement did not disclose as an event.

There is a second and subtler version. Some facilities reset with the index daily, which means the period may contain many small rate changes rather than one. In that case no single printed rate reproduces the charge, and the only route to verification is the lender's own daily rate history — which is generally not supplied with the statement.

A statement's printed rate is a snapshot at a moment. The interest charge is an integral over the period. These are different objects and only one of them is on the page.

Key terms

Rate in force: The rate applying at a specific moment, typically the statement closing date. What the header usually shows.
Blended charge: A single interest figure covering a period in which the rate changed. Reproducing it requires knowing the rate path, not the closing rate.
Effective rate for the period: The single rate that would have produced the actual charge. Computable backwards from the charge, and it usually matches no printed figure.

Worked example

Why the printed rate does not reproduce the charge

31-day period, balance flat at $310,000, Act/360. Rate 6.85% for 12 days, then 7.10% for 19 days.

Daily interest at 6.85%: $58.99
First segment, 12 days: $707.83
Daily interest at 7.10%: $61.14
Second segment, 19 days: $1,161.64
Actual charge: $1,869.47
Charge computed at the printed 7.10% for 31 days: $1,895.31

The effective rate for the period was 7.003 percent — a number that appears nowhere on the statement.

Check yourself

Your statement prints a rate of 7.10% and an interest charge of $1,869.47 on a flat $310,000 balance over 31 days, Act/360. Your own calculation gives $1,895.31. What is the likely explanation?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.