Mortgage Loan Originator (MLO) Licensing Practice Test

Which change in the closing disclosure necessitates a new three-business-day waiting period?

1. Addition to prepayment penalty

2. Change in interest rate

3. Change in loan product type

4. Additional seller credit

The correct answer is: Addition to prepayment penalty

A prepayment penalty is an additional cost that can significantly impact a borrower’s financial obligations. If this cost is added to the loan after the initial closing disclosure has been issued, it represents a major change that directly affects the terms of the loan. The inclusion of a prepayment penalty could alter the borrower's decision regarding whether to accept the loan, as it may impose limitations on their ability to pay off the loan early without incurring fees. Under the TILA-RESPA Integrated Disclosure (TRID) rule, any change that results in a significant alteration to the loan terms, including the addition of a prepayment penalty, triggers a new three-business-day waiting period. This ensures that borrowers have adequate time to understand the implications of the changes before proceeding with the closing of the loan. In contrast, while changes in interest rates, loan product types, or additional seller credits can also affect the overall loan terms, they do not necessarily invoke the same waiting period under the regulations. Some adjustments, such as minor changes in interest rates within a specific range or seller credits not altering the fundamental structure of the loan, may not require a new waiting period, thereby allowing the closing to proceed more quickly.