What is an important feature of a qualified mortgage (QM)?

What is an important feature of a qualified mortgage (QM)?

• A. It allows for unlimited loan amounts
• B. It cannot have balloon payments
• C. It must be insured by the government
• D. It is available only to high-income borrowers

Answer: (B)

A qualified mortgage (QM) is designed to ensure that borrowers have a reasonable ability to repay their loans and to promote sound lending practices. One of the fundamental features of a QM is that it cannot have balloon payments. Balloon payments are large final payments that are significantly higher than the preceding regular payments, which can pose a risk of default for borrowers who may not be able to afford such a large payment. This restriction on balloon payments helps prevent financial instability for borrowers, as it requires the mortgage to have a more consistent and predictable repayment structure. Qualified mortgages are designed to protect consumers and ensure more stable lending practices. Other features of a QM typically include limits on fees and points, a requirement for lenders to verify the borrower’s ability to repay, and restrictions on interest-only loans or negative amortization. The other options do not align with the defining characteristics of a qualified mortgage. For instance, there are no limits on loan amounts for a QM, not all QMs require government insurance, and they are not exclusively available to high-income borrowers. Instead, QMs are intended to be accessible to a broader range of borrowers while adhering to responsible lending standards.

A qualified mortgage (QM) is designed to ensure that borrowers have a reasonable ability to repay their loans and to promote sound lending practices. One of the fundamental features of a QM is that it cannot have balloon payments. Balloon payments are large final payments that are significantly higher than the preceding regular payments, which can pose a risk of default for borrowers who may not be able to afford such a large payment.

This restriction on balloon payments helps prevent financial instability for borrowers, as it requires the mortgage to have a more consistent and predictable repayment structure. Qualified mortgages are designed to protect consumers and ensure more stable lending practices. Other features of a QM typically include limits on fees and points, a requirement for lenders to verify the borrower’s ability to repay, and restrictions on interest-only loans or negative amortization.

The other options do not align with the defining characteristics of a qualified mortgage. For instance, there are no limits on loan amounts for a QM, not all QMs require government insurance, and they are not exclusively available to high-income borrowers. Instead, QMs are intended to be accessible to a broader range of borrowers while adhering to responsible lending standards.