A 79-year-old on a fixed income of $2,150 a month is offered a cash-out refinance that raises her payment by $340 and pays off a $9,000 card. What payment-versus-income comparison should the originator explain before the borrower evaluates this debt consolidation?
Correct Answer
A) Explain that the $340 mortgage payment increase equals about 15.8% of her stated monthly income
A. The additional mortgage payment equals about 15.8% of monthly income. $340 ÷ $2,150 × 100 = 15.81%. This measures only the incremental mortgage payment. The card payment, refinancing fees and loan terms are missing, so net monthly savings and lifetime cost cannot be determined. Scope and exceptions: 15.8% is not total DTI or a legal affordability cutoff. ECOA permits specified age considerations, including individualized creditworthiness analysis; it does not justify a blanket age-based refusal. Source: Section 1002.6(b)(2), comment 6(b)(2)-3 — https://www.consumerfinance.gov/rules-policy/regulations/1002/6/
Why This Is the Correct Answer
A. The additional mortgage payment equals about 15.8% of monthly income. $340 ÷ $2,150 × 100 = 15.81%. This measures only the incremental mortgage payment. The card payment, refinancing fees and loan terms are missing, so net monthly savings and lifetime cost cannot be determined. Scope and exceptions: 15.8% is not total DTI or a legal affordability cutoff. ECOA permits specified age considerations, including individualized creditworthiness analysis; it does not justify a blanket age-based refusal.
Why the Other Options Are Wrong
Option B: Proceed if she signs an acknowledgement that she understands the terms
Acknowledgement does not replace explaining the comparison.
Option C: Proceed: consolidating high-rate card debt is always the better deal
A higher card rate alone does not determine total consolidation cost.
Option D: Decline: lending to a borrower aged 79 is discrimination by age
Lending to an older applicant is not age discrimination; rejecting solely because of age is the concern.
Exam Tip
Separate incremental mortgage cost, net monthly debt cost and lifetime cost.
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