Champions Powerhouse Training SAE Practice Test

A corrected Closing Disclosure is required when a prepayment penalty is added because the inclusion of a prepayment penalty changes the terms of the loan and the overall costs associated with the transaction. This penalty impacts the borrower’s potential financial commitment and obligations, as it dictates the fees that would apply if they choose to pay off the loan early.

Under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), any changes that significantly affect the loan terms, such as the addition of a prepayment penalty, necessitate a new or corrected Closing Disclosure to ensure that consumers are fully informed about the costs and terms of their loan prior to closing. It's essential for consumers to have accurate information to make informed decisions about their mortgage options.

In contrast, other changes such as the addition of a transaction fee, a counteroffer, or a loan payoff do not inherently trigger the same requirement for a corrected Closing Disclosure. While these changes may require adjustments or communications, they do not alter the essential terms of the loan and usually do not affect the borrower’s rights or financial obligations in the same way as a prepayment penalty would.