Net Tangible Benefit

Full definition

The net tangible benefit (NTB) standard originated in mortgage lending regulation as a check against predatory refinancing (loan flipping). Several states applied it to home loans after the predatory lending crisis of the early 2000s. What constitutes net tangible benefit: Rate reduction: the new loan's APR is materially lower than the existing loan (typically by at least 0.5%-1%). Payment reduction: monthly payment decreases meaningfully, and the savings are not offset by a term extension that dramatically increases total interest paid. Cash-out for verified purpose: cash-out refinancing for home improvement or debt consolidation, where the new total cost is calculably beneficial. Reduced term: shortening the loan term to save total interest, even if monthly payment rises. What does NOT constitute net tangible benefit: Reducing monthly payment solely by extending the loan term (rate unchanged). Refinancing primarily to collect a new origination fee. Providing cash-out that the borrower does not need when it increases total debt burden. Changing from a fixed rate to a variable rate without meaningful rate reduction. Application to personal loans: Federal law does not universally require NTB analysis for personal loan refinancing (it is most established for mortgages). However, the CFPB's UDAAP authority allows it to pursue lenders whose refinancing practices systematically harm borrowers. Consumer advocates argue that any personal loan refinancing should pass an informal NTB test: total cost of the new loan (principal + interest + fees) should be less than the total remaining cost of the existing loan (remaining interest payments).

• Refinance
• Loan Flipping
• Prepayment penalty
• Origination fee
• APR (Annual Percentage Rate)