Loan Officer Financial Calculations and Terms 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)?

Accepted Answer

$813.70

Answer

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?

Accepted Answer

$4,800

Answer

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)?

Accepted Answer

28%

Answer

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?

Accepted Answer

Amortization

Answer

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?

Accepted Answer

75%

Answer

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%.

Loan Officer Exam Practice Test

Loan Officer Exam Practice Test

Loan Officer Financial Calculations and Terms Questions and Answers