A homeowner refinances a principal-dwelling mortgage with the same creditor and borrows an additional $25,000 in new money. Assuming no other exemption, to what extent does rescission generally apply?
Correct Answer
C) To the new advance beyond the existing obligation and permitted refinancing amounts
Why this is correct: Regulation Z provides an exemption from rescission for a same-creditor refinancing, but only to the extent of the unpaid principal balance of the existing obligation plus other permitted amounts (like closing costs). Any new money advanced beyond that exempt amount is generally subject to the right of rescission. Therefore, rescission applies to the new advance beyond the existing obligation. Why the other choices are wrong: To the entire original unpaid balance is wrong because that portion is exempt under the same-creditor refinancing rule. Only to accrued property taxes is wrong; while taxes might be part of permitted amounts, the rescindable portion is the new advance of cash to the borrower. It never applies when the same creditor refinances is wrong because the exemption is limited; new money is not exempt. Exam tip: In a same-creditor refi, rescission rights are 'carved out' for the new money given to the borrower beyond the old loan balance.
Why This Is the Correct Answer
Why this is correct: Regulation Z provides an exemption from rescission for a same-creditor refinancing, but only to the extent of the unpaid principal balance of the existing obligation plus other permitted amounts (like closing costs). Any new money advanced beyond that exempt amount is generally subject to the right of rescission. Therefore, rescission applies to the new advance beyond the existing obligation. Why the other choices are wrong: To the entire original unpaid balance is wrong because that portion is exempt under the same-creditor refinancing rule. Only to accrued property taxes is wrong; while taxes might be part of permitted amounts, the rescindable portion is the new advance of cash to the borrower. It never applies when the same creditor refinances is wrong because the exemption is limited; new money is not exempt. Exam tip: In a same-creditor refi, rescission rights are 'carved out' for the new money given to the borrower beyond the old loan balance.
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