What does the term "net tangible benefit" refer to in mortgage lending?

The term "net tangible benefit" in mortgage lending refers specifically to a measurable financial advantage to the borrower. This concept is critical in several lending situations, especially when a borrower is refinancing their existing mortgage.

For a refinancing transaction to be considered beneficial, the borrower must experience a discernible improvement in their financial situation as a result of the new loan. This can manifest through various means, such as a decrease in monthly payments, the elimination of mortgage insurance, or a more favorable loan term. The overall goal is to ensure that the borrower is obtaining a product that enhances their financial wellbeing.

Other potential interpretations, such as a loan being easier to qualify for, a lower interest rate, or approval without income verification, do not adequately capture the essence of "net tangible benefit." While these factors may contribute to the overall advantage of a loan, the core definition is rooted in the tangible, measurable financial gain realized by the borrower. This ensures that borrowers engage in refinancing or obtaining new loans only when it is genuinely beneficial for their financial situation.