What criteria is essential for a refinance to be recommended to a borrower?

A net tangible benefit is vital when recommending a refinance to a borrower because it serves as a guideline to ensure that the borrower is receiving a measurable advantage from the transaction. This benefit could manifest in various forms, such as a lower monthly payment, reduced interest costs over the life of the loan, or converting from an adjustable-rate mortgage to a fixed-rate loan for stability.

The principle behind the net tangible benefit is to provide the borrower with a clear understanding that refinancing is not merely a paperwork exercise but rather a financial decision that enhances their overall economic situation. For instance, even if a borrower might ultimately secure a lower interest rate or extend the loan term, those factors alone do not qualify as a true benefit unless they contribute positively to the borrower's financial well-being.

In essence, the net tangible benefit encapsulates the purpose of a refinance—ensuring a positive impact on the borrower’s financial health and justifying the costs associated with refinancing.