Loan Officer Financial Calculations and Terms Questions and Answers — Questions and Answers
Question 1: A borrower is taking out a $450,000 loan with a 6% interest rate. The loan is scheduled to close on May 20th. How much per diem interest will the borrower owe at closing for the remainder of May (a 31-day month)?
- $73.97
- $739.73
- $813.70 (Correct answer)
- $887.67
Correct answer: $813.70
To calculate per diem (daily) interest, first find the annual interest ($450,000 * 6% = $27,000). Then, find the daily interest amount ($27,000 / 365 = $73.97). The borrower pays interest for the remaining days in the month, including the closing day. For a May 20th closing, there are 12 days left in May (20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31). The total per diem interest is the daily amount multiplied by the number of days ($73.97 * 12 = $887.64). The closest answer is $887.67, accounting for slight rounding variations.
Question 2: A homebuyer is obtaining a $320,000 mortgage. To lower their interest rate, they decide to pay 1.5 discount points at closing. What is the total cost of these points?
- $3,200
- $1,500
- $4,800 (Correct answer)
- $6,400
Correct answer: $4,800
One discount point is equal to 1% of the loan amount. In this case, 1 point would cost $3,200 (1% of $320,000). Since the homebuyer is paying 1.5 points, the total cost is 1.5 multiplied by the cost of one point, which is $320,000 * 0.015 = $4,800.
Question 3: An applicant has a gross monthly income of $7,500. Their proposed monthly mortgage payment (including principal, interest, taxes, and insurance) is $2,100. What is their housing expense ratio (front-end DTI)?
- 25%
- 28% (Correct answer)
- 31%
- 36%
Correct answer: 28%
The housing expense ratio, also known as the front-end debt-to-income (DTI) ratio, is calculated by dividing the total monthly housing payment (PITI) by the gross monthly income. In this scenario, the calculation is $2,100 / $7,500 = 0.28, which is 28%.
Question 4: Which of the following financial terms describes the process of paying off a loan's principal balance over time through a series of fixed, scheduled payments that cover both principal and interest?
- Appreciation
- Negative Amortization
- Refinancing
- Amortization (Correct answer)
Correct answer: Amortization
Amortization is the process of spreading out a loan into a series of fixed payments. Each payment consists of both principal and interest. Over the life of the loan, the portion of the payment that goes toward principal increases, while the portion going toward interest decreases.
Question 5: A homeowner is refinancing their mortgage. Their property is currently appraised at $500,000, and they are seeking a new loan for $375,000 to pay off their existing mortgage. What is the Loan-to-Value (LTV) ratio for this refinance transaction?
- 80%
- 125%
- 75% (Correct answer)
- 25%
Correct answer: 75%
The Loan-to-Value (LTV) ratio is calculated by dividing the loan amount by the appraised value of the property. For this refinance, the calculation is $375,000 (Loan Amount) / $500,000 (Appraised Value) = 0.75, or 75%.
Question 6: A borrower secures a 30-year mortgage that has a fixed interest rate for the first seven years. After this initial period, the interest rate can change once per year for the remainder of the loan term. What is this type of loan called?
- A 30-year Fixed-Rate Mortgage
- A 7/1 Adjustable-Rate Mortgage (ARM) (Correct answer)
- A Balloon Mortgage
- An Interest-Only Loan
Correct answer: A 7/1 Adjustable-Rate Mortgage (ARM)
This loan is a 7/1 Adjustable-Rate Mortgage (ARM). The '7' signifies the initial seven-year period where the interest rate is fixed. The '1' indicates that the interest rate is subject to adjustment once per year after the initial fixed period ends.
Loan Officer Financial Calculations and Terms Questions and Answers
A borrower is taking out a $450,000 loan with a 6% interest rate.
The loan is scheduled to close on May 20th.
How much per diem interest will the borrower owe at closing for the remainder of May (a 31-day month)?