Which of the following statements about mortgage closing costs in Illinois transactions is NOT accurate?
Correct Answer
B) Prepaid interest and real estate transfer tax are the same closing cost, collected for the same purpose at closing.
Prepaid interest and real estate transfer tax are entirely separate charges with different purposes. Prepaid interest is a per diem interest charge collected at closing to cover the days between the closing date and the start of the first full loan payment cycle — it is paid to the lender. Illinois real estate transfer tax (35 ILCS 200/31-10) is a state tax imposed on the privilege of transferring title to real property, paid to the government based on the sale price. Conflating the two is factually incorrect.
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Related Topics & Key Terms
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Related Concepts
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
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An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
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