Laws to provide stable, suitable home financing created a category of loans and lending practices called “Qualified Mortgages.” They provide guidance to help lenders provide loans that borrowers can repay successfully. Following the guidance and practices — and assessing each borrower’s ability to repay— gives lenders additional legal protection.
The Qualified Mortgage guidelines provide predictable and more-easily-understood loan features. They also rule out some loan terms and practices. Qualified mortgages cannot be:
- Interest-only loans
- Loans with terms >30 years
- “Negative Amortization” loans (increasing principal over time)
- Most forms of “balloon” loans with large payment partway into the loan period.
These consistent practices help lenders and regulators provide consumers with objective guidance about reasonable debt.
If you are buying a home, ask about your Qualified Mortgage options.