What is the ability-to-repay rule? Why is it important to me?

The ability-to-repay rule requires most mortgage lenders to make a good-faith effort to determine that you are likely to be able to pay back the loan. This is important because during the financial crisis many lenders made loans without making sure borrowers had enough income to repay their mortgage loans. As a result many borrowers ended up in risky loans they could not afford. Congress responded by passing a common-sense law that says mortgage lenders must make a reasonable effort to figure out if a borrower has the ability to repay the mortgage before the loan is made.

The CFPB is responsible for enforcing this law, and we have written a rule that says lenders have to make a reasonable and good-faith effort to figure out a borrower’s ability to repay a mortgage. In practice this means lenders must generally find out, consider, and document a borrower’s income, assets, employment, credit history and monthly expenses. Lenders cannot just use an introductory or “teaser” rate to figure out if a borrower can repay a loan.  For example, if a mortgage has a low interest rate that goes up in later years, the lender has to make a reasonable effort to figure out if the borrower can pay the higher interest rate too.

One way a lender can follow the ability-to-repay rule is by making a "Qualified Mortgage.”

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