An MLO is processing a refinance for a borrower who currently has an interest-only loan. The new loan will be a fully amortizing loan with a higher monthly payment but lower interest rate. Which factor is MOST important for establishing tangible net benefit?
Correct Answer
A) The elimination of the interest-only feature and principal reduction benefit
When refinancing from an interest-only loan to a fully amortizing loan, the tangible net benefit can be established through the elimination of negative amortization risk and the benefit of principal reduction, even if payments increase.
Why This Is the Correct Answer
When refinancing from an interest-only loan to a fully amortizing loan, the tangible net benefit can be established through the elimination of negative amortization risk and the benefit of principal reduction, even if payments increase.
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