Question

A loan is also a high-cost home loan if the transaction's points and fees will exceed: ( 1 of 2 ) For a loan amount of $21,980 or more: ______% of the total loan amount.

A) 1%
B) 3%
C) 5%
D) 10%

Answer 1

A loan amount of $21,980 or more is considered a high-cost home loan if points and fees exceed 5% of the total loan amount.

Step-by-step explanation:

A loan is considered a high-cost home loan if the transaction's points and fees exceed certain percentages of the total loan amount. For a loan amount of $21,980 or more, the Consumer Financial Protection Bureau (CFPB) specifies that a loan is high-cost if the points and fees exceed 5% of the total loan amount. Therefore, for the provided question, the correct answer is (C) 5%.

For a loan amount of $21,980 or more, a high-cost home loan is typically defined by the points and fees exceeding 5% of the total loan amount. Points and fees encompass various costs, including origination charges, third-party fees, and certain prepaid items.

This threshold is established to protect borrowers from excessively expensive loans, ensuring they are aware of and protected from substantial upfront costs. It's essential for borrowers to carefully review the points and fees associated with a loan to determine if it falls under the classification of a high-cost home loan.