For a construction-to-permanent loan, the permanent financing phase interest rate is typically determined by:
Correct Answer
B) The rate in effect when construction is completed and conversion occurs
Most construction-to-permanent loans have a 'floating' permanent rate that is set at the time of conversion to permanent financing, typically when construction is completed. This protects lenders from interest rate risk during the construction period while ensuring current market rates apply to the long-term mortgage.
Why This Is the Correct Answer
Most construction-to-permanent loans have a 'floating' permanent rate that is set at the time of conversion to permanent financing, typically when construction is completed. This protects lenders from interest rate risk during the construction period while ensuring current market rates apply to the long-term mortgage.
More Origination Questions
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Which of the following is a key risk factor that lenders evaluate more heavily in construction loans compared to traditional mortgages?
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An MLO presents a borrower with a conventional loan at 4.0% with 1 point, a conventional loan at 4.25% with 0 points, and a VA loan at 4.1% with 0.5 points. The borrower asks why no FHA options were presented. The MLO should: