Under the QM final rule, an interest only loan is prohibited. (If you are trying to make a QM.) We have a short interest only period for our larger home improvement loans. They are 15 - 20 year term loans with a fixed rate; however, there is a short interest only period during the draw/construction period of the loan. When the loan is fully drawn, it goes into P&I repayment for the term of the loan.

Would this be considered an interest only loan and disqualified as a QM under the final rule?

Tagging on here: temporary financing loans are exempt from this section according to 1026.43(a)(3)(ii). So would an interest only loan for say 12 months (presumably to be followed by permanent financing of a much longer term) be exempt as well? Since loans that don't meet QM status aren't expressly forbidden under this section (you just take on more risk), what exactly would be the legal status of the loan i describe in regards to possible litigation? Thanks for any responses.

You might want to do a search within the ability to repay Federal Register and re-read the preamble. There are a number of discussions on contruction to permanent lending, including:

Comment 43(a)(3)-2 also makes clear that if the construction phase of a construction-to-permanent loan is treated as exempt, the permanent financing phase may be a qualified mortgage if it meets the appropriate requirements.

raitch, if it's a true temporary loan, my reading says it's exempt from the rules, so it would fall under normal TIL liability.

What you have described, IMHO, would be a true temporary loan.

Thanks Randy and Joker.