We have a loan request to put up the borrowers current primary residence as collateral and use the equity of the home to purchase a new home. Their current home is for sale, and their plans are to pay off the loan once the home sales.

The loan officer wants to set up the loan as a 6-month interest only loan. However, this is a short term loan since the intent is for the loan to be paid off and not go to permanent financing. Therefore, the loan would be a non-qualified mortgage (because of the interest only payments) and the lender would have to use the amount due in six months to qualify the customers?

Sounds like a bridge loan to me which would be exempt from the ATR rules. See 1026.43(a)(3)

DItto CB.

Is it still considered a bridge loan even though the intent is for the loan to be paid off?

I thought that a bridge loan had to be replaced to by permanent financing in order to receive the exemption.

I have used this as a guide to determine if a loan is or is not a bridge loan.
Bridge Loan

Just don't want to mess up....

1026.43 applies a bit broader interpretation of a bridge loan.

(ii) A temporary or "bridge" loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling;

Let me make sure I get this right. HMDA will apply. RESPA will apply. QM/ATR will not apply.