Compare a 25-year interest-only loan, a fully amortizing 30-year fixed-rate loan with level monthly payments and a 2% origination fee, a 20-year loan with a balloon in year seven, and a payment-option loan permitting negative amortization. Assuming all other General QM requirements are met and no balloon-payment exception applies, which has permissible loan features?
Correct Answer
C) Only the 30-year fixed can be a qualified mortgage under this rule
C. Only the specified fully amortizing 30-year fixed-rate product has permissible features. Interest-only payments defer principal; negative amortization permits the balance to grow. The balloon feature is excluded on the stated facts. The remaining product amortizes fully through regular payments. Scope and exceptions: A fixed rate or a 2% origination fee alone does not prove QM status. All applicable points-and-fees, term, underwriting and pricing requirements still apply; the stem expressly assumes them. Non-QM does not automatically mean unlawful. Source: Section 1026.43(e)(2)(i)–(ii) and accompanying interpretations — https://www.consumerfinance.gov/rules-policy/regulations/1026/43/
Why This Is the Correct Answer
C. Only the specified fully amortizing 30-year fixed-rate product has permissible features. Interest-only payments defer principal; negative amortization permits the balance to grow. The balloon feature is excluded on the stated facts. The remaining product amortizes fully through regular payments. Scope and exceptions: A fixed rate or a 2% origination fee alone does not prove QM status. All applicable points-and-fees, term, underwriting and pricing requirements still apply; the stem expressly assumes them. Non-QM does not automatically mean unlawful.
Why the Other Options Are Wrong
Option A: The interest-only loan and the 30-year fixed can both be qualified mortgages
The interest-only product fails the principal-repayment requirement.
Option B: All 4 can qualify, since the features affect pricing and not QM status
These features affect QM eligibility, not merely price.
Option D: Only the 20-year balloon fails, because a balloon is the sole bar
Balloon payments are not the only disqualifying feature.
Exam Tip
Check payment structure separately from interest-rate type and total fees.
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