Which interest rate type disqualifies a mortgage from being a qualified mortgage?

The correct answer is that a subprime interest rate disqualifies a mortgage from being classified as a qualified mortgage. Qualified mortgages (QMs) are designed to ensure that borrowers can repay their loans and are subject to specific criteria outlined by regulations. One of these criteria is that the interest rate cannot be excessively high.

Subprime interest rates, by definition, are typically elevated compared to rates offered to borrowers with better credit profiles. These rates indicate a higher risk of default by the borrower, and therefore, loans with subprime interest rates do not meet the standards of QMs. Loans categorized as subprime are seen as more dangerous for lenders due to the borrower's creditworthiness and the potential for default.

In contrast, variable and fixed interest rates can fall under the category of qualified mortgages if they align with other requirements set forth, such as ensuring that the borrower has the capacity to repay the loan. A discounted interest rate, often used as a promotional tool, does not inherently disqualify the mortgage from being a QM as long as the overall terms comply with QM standards.