A borrower has an interest-only mortgage with a current balance of $400,000. They want to refinance to a fully amortizing loan with the same balance of $400,000 but need an additional $3,000 for closing costs, making the new loan $403,000. How should this transaction be classified?
Correct Answer
A) Rate-and-term refinance because the additional amount is only for closing costs
Under TRID regulations, this is a rate-and-term refinance. When the new loan amount exceeds the existing balance solely to cover closing costs, prepaids, and other financing costs (typically up to $2,000 or applicable threshold), it remains classified as rate-and-term refinance rather than cash-out.
Why This Is the Correct Answer
Under TRID regulations, this is a rate-and-term refinance. When the new loan amount exceeds the existing balance solely to cover closing costs, prepaids, and other financing costs (typically up to $2,000 or applicable threshold), it remains classified as rate-and-term refinance rather than cash-out.
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