A borrower owns a home worth $400,000 with an existing mortgage balance of $200,000. They want to obtain a new loan for $250,000 to pay off the existing mortgage and receive $50,000 in cash. Six months later, they decide to get another loan for $300,000 to pay off the $250,000 loan and receive additional cash. How should the second transaction be classified?
Correct Answer
A) Cash-out refinance because they're receiving additional cash beyond closing costs
Under TRID regulations, any refinance transaction where the new loan amount exceeds the outstanding principal balance of the existing mortgage by more than $2,000 (or applicable threshold) is classified as a cash-out refinance, regardless of previous cash-out transactions on the same property.
Why This Is the Correct Answer
Under TRID regulations, any refinance transaction where the new loan amount exceeds the outstanding principal balance of the existing mortgage by more than $2,000 (or applicable threshold) is classified as a cash-out refinance, regardless of previous cash-out transactions on the same property.
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