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Preferred Rate Loans

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  • #4684
    cnakashige
    Participant

    I’m not sure if this questioned has been addressed or not for preferred rate loans. These discounted loan rates are offered for employees, automatic payments, and to those clients with a larger deposit relationship. If an employee, for example, had a 1/4% discount on the the current 10-year 3.75% rate (rate of 3.50%), under the revised Reg Z ATR rules do we underwrite to the 3.75% rate and not the discounted rate? If the rate does increase (employee resigns or automatic payment ceases), can the loan still be considered a QM?

    #4781
    rcooper
    Keymaster

    In order to meet the QM requirements, you would use the highest rate possible in the first five years after the first payment is due, so if the non-discounted rate is a possibility (meaning the discounted rate is conditional and can revert to the non-discounted rate) you would use the non-discounted rate.

    #4808
    jholzknecht
    Keymaster

    The ability to repay rules do not specifically address preferred rate loans. Robin’s reply provides a safe course of action for General Rule QMs. If you utilize one of the other ability-to-repay options the response may be different.

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