A Texas homestead is appraised at $600,000 with a first mortgage of $288,000. The homeowner takes the maximum home equity loan and pays 1.5 discount points at closing. How much will she pay in discount points?
Correct Answer
B) $2,880
Texas caps a home equity loan so that every lien against the homestead, taken together, stays at or below 80% of fair market value (Tex. Const. art. XVI, sec. 50(a)(6)(B)). Eighty percent of $600,000 is $480,000. The first mortgage already occupies $288,000 of that ceiling, so the largest equity loan available is $480,000 - $288,000 = $192,000. Discount points are charged against the loan amount, not the property value: $192,000 x 1.5% = $2,880. Why the others are wrong: $1,440 applies 1.5% to half the available loan. $2,160 applies the points to $144,000, which is what you get by subtracting an 80% figure taken from the wrong base. $5,040 applies the points to the full $336,000 of headroom below the first mortgage rather than to the loan itself.
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Related Concepts
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.
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.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
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A Texas homeowner takes a $180,000 home equity loan at 5% annual interest. The lender charges the maximum allowable 3% fee. What is the total of fees plus first month's interest?
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