If the interest rate changes before the expiration of a commitment, what must the licensee disclose to the borrower?

Prepare for the New Jersey Residential Mortgage Lending Act Exam. Use flashcards, multiple choice questions with explanations to excel in your test. Gear up for success!

When the interest rate changes before the expiration of a commitment, the licensee must disclose the basis, index, or method for determining the rate at closing. This is essential because it provides the borrower with a clear understanding of how the interest rate is derived, ensuring transparency in the lending process. Knowing the basis or index allows the borrower to assess potential fluctuations in their payment amount and understand how the rate may behave in the future. This information is critical for financial planning and decision-making on the part of the borrower.

In contrast, while knowing the total amount of fees associated with the loan, the estimated closing date, or the credit score requirements can be important for borrowers, these elements are not directly related to the assessment of the changing interest rate and how it affects their loan. The focus here is on the interest rate mechanism, which has a substantial impact on the overall cost of the mortgage over time and the borrower’s financial obligations. Hence, the requirement to disclose the basis, index, or method is a protective measure for the borrower, ensuring they are fully informed about the dynamics influencing their loan terms.

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