A homeowner refinances a $220,000 mortgage with a new $260,000 loan and receives $28,000 after payoff and closing costs. How is the new transaction best described?
Correct Answer
D) Cash-out refinance
Why this is correct: A cash-out refinance occurs when a new, larger loan replaces an existing mortgage, and the borrower receives the excess funds in cash. Here, the old loan was $220,000. The new loan is $260,000, and the borrower receives $28,000 in cash after paying off the old balance and costs. This fits the definition of a cash-out refinance. Why the other choices are wrong: Purchase transaction is wrong because the property is not being bought from a seller; it's an existing homeowner refinancing. Construction-to-permanent loan is wrong as there is no mention of a construction phase. Reverse mortgage is wrong because a reverse mortgage provides payments to the borrower, but does not require immediate repayment; this is a standard refinance with a lump-sum cash disbursement. Exam tip: If a refi gives the borrower cash back (beyond just covering costs), it's almost always a cash-out refinance.
Why This Is the Correct Answer
Why this is correct: A cash-out refinance occurs when a new, larger loan replaces an existing mortgage, and the borrower receives the excess funds in cash. Here, the old loan was $220,000. The new loan is $260,000, and the borrower receives $28,000 in cash after paying off the old balance and costs. This fits the definition of a cash-out refinance. Why the other choices are wrong: Purchase transaction is wrong because the property is not being bought from a seller; it's an existing homeowner refinancing. Construction-to-permanent loan is wrong as there is no mention of a construction phase. Reverse mortgage is wrong because a reverse mortgage provides payments to the borrower, but does not require immediate repayment; this is a standard refinance with a lump-sum cash disbursement. Exam tip: If a refi gives the borrower cash back (beyond just covering costs), it's almost always a cash-out refinance.
More Mortgage Knowledge Questions
In a closing-readiness check, a risk reviewer sees facts tied to TILA Truth in Advertising. What should the file reflect?
In a training scenario, a trainee asks which official source controls FHA single-family origination policy. What action best follows the rule?
A compliance analyst compares the file facts with LTV Ratio Calculation during a licensing team review. Which conclusion is accurate?
A branch manager asks about a loan file because a trainee asks which official source controls FHA single-family origination policy. What should happen?
The loan team compares the file facts with ARM Cap Structures during a borrower follow-up call. Which conclusion is accurate?
A borrower has a 30-year fixed-rate mortgage with monthly principal and interest of $1,450. Property taxes increase, and taxes are paid through escrow. What can happen to the total monthly payment?
A loan has an outstanding principal balance of $240,000 and a 6% annual interest rate. Using simple monthly accrual, how much interest accrues for one month?
An annual escrow analysis for a current borrower shows a $780 shortage. One month's escrow payment is $600. The servicer elects to require repayment over the shortest installment period permitted by Regulation X for this shortage. What schedule is permitted?
What does an amortization schedule show for each scheduled payment?
A monthly principal-and-interest payment is $1,800, of which $1,250 is interest. How much principal is paid that month?
People Also Study
Federal Mortgage-Related Laws
24% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
In a document-cure review, the branch manager sees facts tied to TILA Right of Rescission. What should the file reflect?
Next Question
During a disclosure desk review, the branch manager encounters a Conforming Loan Limits issue. Which response should decide how the file should be documented?