A borrower owns their home free and clear and wants to obtain a $100,000 mortgage against the property to start a business. What type of transaction is this?
Correct Answer
C) Cash-out refinance
When a borrower places a new mortgage on a property they own free and clear, this is classified as a cash-out refinance regardless of the intended use of proceeds. The borrower is converting equity to cash, which is the defining characteristic of a cash-out refinance transaction.
Why This Is the Correct Answer
When a borrower places a new mortgage on a property they own free and clear, this is classified as a cash-out refinance regardless of the intended use of proceeds. The borrower is converting equity to cash, which is the defining characteristic of a cash-out refinance transaction.
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?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
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?
People Also Study
Federal Mortgage-Related Laws
23% of exam
Mortgage Loan Origination Activities
25% of exam
Ethics, Fraud & Consumer Protection
17% of exam
Uniform State Test Content
12% of exam
Previous Question
A borrower has a 30-year fixed mortgage and wants to pay it off in exactly 20 years without refinancing. What strategy would achieve this most efficiently?
Next Question
A borrower wants to finance a $600,000 home purchase with an FHA loan in an area where the conforming loan limit is $766,550 and the FHA loan limit is $472,030. What is the maximum FHA loan amount available?