A high-cost mortgage is drafted with a 7-year term and a balloon payment of $180,000 at maturity. The borrower has regular monthly income.
Correct Answer
B) Prohibited: the 7-year balloon is barred on a high-cost mortgage here
Balloon payments are barred on a high-cost mortgage, with narrow exceptions for bridge loans of 12 months or less and for certain seasonal-income and small-creditor situations that do not apply to a borrower with regular monthly income. Other choices: a 7-year term is not an exception; there is no 50% test; and the bar does not turn on the balloon falling inside 5 years. Source: 12 CFR 1026.32(d)(1)
Why This Is the Correct Answer
Balloon payments are barred on a high-cost mortgage, with narrow exceptions for bridge loans of 12 months or less and for certain seasonal-income and small-creditor situations that do not apply to a borrower with regular monthly income. Other choices: a 7-year term is not an exception; there is no 50% test; and the bar does not turn on the balloon falling inside 5 years. Source: 12 CFR 1026.32(d)(1)
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