A private individual, who is neither a bank nor a licensed lender, lends a California homeowner $150,000 for personal purposes, secured by a second deed of trust. No real estate broker made or arranged the loan. Under Article XV of the California Constitution, what is the highest annual rate of interest the lender may charge?
Correct Answer
A) Ten percent per year
Article XV, section 1 of the California Constitution caps interest on a loan made primarily for personal, family, or household purposes at 10 percent a year. Loans made for other purposes get the higher alternative ceiling, the greater of 10 percent or 5 percent above the discount rate of the Federal Reserve Bank of San Francisco. Most institutional credit escapes the usury law entirely, and so does a loan made or arranged by a licensed real estate broker and secured by real property under Civil Code section 1916.1. This lender fits none of those exemptions and the money is for personal use, so 10 percent is the ceiling and anything above it is usurious.
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Related Topics & Key Terms
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Related Concepts
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
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