A borrower in Iowa purchases a home for $320,000 with a 20% down payment and finances the remainder with a 30-year fixed-rate mortgage at an annual interest rate of 6%. What is the amount of interest the borrower will owe for the first month of the loan?
Correct Answer
B) $1,280
Step 1: Calculate the loan amount after the 20% down payment: $320,000 x 0.80 = $256,000. Step 2: Convert the 6% annual rate to a monthly rate: 6% / 12 = 0.5% = 0.005. Step 3: First month's interest is $256,000 x 0.005 = $1,280, so the correct answer is B.
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Related Topics & Key Terms
Key Terms:
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The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
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