A borrower wants to refinance their $300,000 mortgage and also pay off $25,000 in credit card debt. The new loan will be for $330,000. However, the credit cards were used exclusively for home improvements completed within the past 12 months. How might this transaction be classified?
Correct Answer
B) Cash-out refinance because they're paying off unsecured debt regardless of its use
Under TRID regulations, this is classified as a cash-out refinance. Even though the credit card debt was incurred for home improvements, it represents unsecured debt being paid off with mortgage proceeds, which triggers cash-out classification regardless of how the original debt was used.
Why This Is the Correct Answer
Under TRID regulations, this is classified as a cash-out refinance. Even though the credit card debt was incurred for home improvements, it represents unsecured debt being paid off with mortgage proceeds, which triggers cash-out classification regardless of how the original debt was used.
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