A borrower has an ARM with a current rate of 4% that could adjust to 8% next year. They want to refinance to a 30-year fixed rate at 5.5%. How should this be evaluated for tangible net benefit?
Correct Answer
B) It passes because it eliminates interest rate risk and potential payment shock
Under 12 CFR 1026.43(e)(3), tangible net benefit analysis must consider the borrower's circumstances and loan features. Converting from an ARM to a fixed rate eliminates interest rate risk and potential payment shock, which provides clear tangible benefit even if the initial rate is higher.
Why This Is the Correct Answer
Under 12 CFR 1026.43(e)(3), tangible net benefit analysis must consider the borrower's circumstances and loan features. Converting from an ARM to a fixed rate eliminates interest rate risk and potential payment shock, which provides clear tangible benefit even if the initial rate is higher.
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