In an interest-only mortgage, the borrower makes interest-only payments for the first 5 years, then begins making fully amortizing payments. This payment change is considered:
Correct Answer
A) Payment shock that must be disclosed under TRID
The significant increase in payment when an interest-only period ends constitutes payment shock. Under TRID regulations (12 CFR 1026.37), lenders must clearly disclose this payment increase on the Loan Estimate and Closing Disclosure to ensure borrowers understand the future payment obligations.
Why This Is the Correct Answer
The significant increase in payment when an interest-only period ends constitutes payment shock. Under TRID regulations (12 CFR 1026.37), lenders must clearly disclose this payment increase on the Loan Estimate and Closing Disclosure to ensure borrowers understand the future payment obligations.
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