A Nevada borrower took out a loan of $420,000 secured by a deed of trust at an annual interest rate of 6%. Using a simple interest calculation, what is the amount of interest that accrues on this loan during the first month?
Correct Answer
B) $2,100 — calculated using the correct 6% annual rate divided by 12 months
Step 1: Identify the annual interest rate: 6% = 0.06. Step 2: Calculate the monthly interest rate: 0.06 ÷ 12 = 0.005 (0.5% per month). Step 3: Multiply the loan principal by the monthly rate: $420,000 × 0.005 = $2,100. The first month's simple interest is $2,100. This is how monthly interest is calculated for deed of trust loans in Nevada and across the country — the annual rate is divided by 12 to get the monthly rate, which is then applied to the outstanding principal balance.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
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