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Hi. We qualify as a Small Creditor who processes Balloon Payment QMs. We have always run these at 62 months (61 monthly payments + 1 balloon payment). Today our Loan Officer wants to run the loan at 36 months instead (35 months + 1 balloon). Is there any reason we can’t do this? I thought we’d lose the QM status if we ran TRID balloons less than 62 months. How would this affect Ability to Repay calculation? I thought we’d have to include the balloon payment in the calculation but in researching this today one bit of info said no. Thanks in advance for your help!
A Balloon-Payment QM must have a term of 60 months or longer.(12 CFR 1026.43(f)(1)(iv)). A balloon loan with a term of 36 months is generally not allowed under the Ability-to-Pay rules. The loan would be allowed only if the debt to income ratio, calculated using the full balloon payment divided by the consumer’s monthly income, meets the standard set by your bank. If the loan amount is $100,000 and the borrower’s monthly income is $5,000, the debt-to-income ratio would be 2,000%. Your standard is probably in the range of 40%.
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