Which of the following scenarios would typically qualify as a rate and term refinance rather than a cash-out refinance?
Correct Answer
B) Borrower refinances $200,000 mortgage to $202,000 to cover closing costs
A rate and term refinance allows the loan amount to increase by a small amount (typically up to 2% or $2,000-$5,000 depending on the loan program) to cover closing costs and prepaid items. The other options involve taking significant cash out or paying off other debts, which would classify them as cash-out refinances.
Why This Is the Correct Answer
A rate and term refinance allows the loan amount to increase by a small amount (typically up to 2% or $2,000-$5,000 depending on the loan program) to cover closing costs and prepaid items. The other options involve taking significant cash out or paying off other debts, which would classify them as cash-out refinances.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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