A borrower has two existing mortgages totaling $200,000 and wants to refinance into a single loan of $195,000, paying off both existing mortgages. What type of transaction is this?
Correct Answer
B) Rate and term refinance
This is a rate and term refinance because the borrower is combining existing mortgage debt into a new mortgage without taking cash out. The new loan amount is less than the total existing mortgage debt, and the purpose is to improve loan terms rather than access equity.
Why This Is the Correct Answer
This is a rate and term refinance because the borrower is combining existing mortgage debt into a new mortgage without taking cash out. The new loan amount is less than the total existing mortgage debt, and the purpose is to improve loan terms rather than access equity.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
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A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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