Qualified Mortgage
Candlefocus EditorQualified mortgages may also include other provisions designed to protect borrowers, such as limits on: balloon payments, which require a large lump-sum payment due at the end of a loan; negative amortization, which
allows for borrowers to pay less each month then what is necessary to cover their principal and interest; and interest-only loans, which only require borrowers to pay down the interest of their loan until the principal is due. Qualified mortgages may also limit or prohibit fees, such as prepayment penalties and excessive points, that some lenders may be tempted to charge in order to increase their income from a particular loan.
In addition to protecting their borrowers, qualified mortgages offer lenders certain benefits in the secondary market. Mortgage-backed securities and other mortgage-related investments are typically only eligible for sale, purchase, and securitization if they are based on qualified mortgages, as they are deemed to be of higher quality and risk than other mortgage products. Moreover, lenders may be protected from certain legal and financial liabilities if they originate qualified mortgages.
Qualified mortgages are an important part of ensuring a healthy and stable mortgage market. By verifying borrowers’ ability to repay, limiting risky loan features, and offering lenders and investors additional security, these types of mortgages can help protect borrowers and the financial system from mortgage-related crises.