Good Morning. I need some guidance. We currently make loans under the Small Creditor Balloon QM; however, my Chief Lending Officer would like to do away with the balloon and have a rate adjustment that takes place every five years, and still maintain the loan as a qualified mortgage. Is this possible? I know under the Small Creditor QM it discusses the maximum rate in 5 years but given the time to answer, I was not able to find information further detailing what was allowed. Any help is greatly appreciated.

You mean this?

1026.43(e)(2)(iv) For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using:

(A) The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due;

rlcarey,

Yes that is correct. Can the rate continue to change after that and we still maintain this loan as a QM?

Yes- just that your ATR has to be based on the highest rate possible in the first five years.

Okay, perfect. Thank you.