What is the purpose of the margin in an adjustable-rate mortgage?
Correct Answer
B) To represent the lender's profit and cost of doing business above the index
The margin represents the lender's profit and cost of doing business. It remains constant throughout the loan term and is added to the index to determine the fully indexed rate.
Why This Is the Correct Answer
The margin represents the lender's profit and cost of doing business. It remains constant throughout the loan term and is added to the index to determine the fully indexed rate.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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Previous Question
A borrower pays 2 discount points on a $200,000 loan. How much did the borrower pay in discount points?
Next Question
A borrower owns a home worth $400,000 with an existing mortgage balance of $200,000. They want to obtain a new loan for $250,000 to pay off the existing mortgage and receive $50,000 in cash. Six months later, they decide to get another loan for $300,000 to pay off the $250,000 loan and receive additional cash. How should the second transaction be classified?