Final answer:
The borrower cannot be required to pay more than 20% of the loan amount after closing. This is related to down payments and ARMs, where rates can initially be low but increase significantly. Usury laws capping interest rates at 35% would reduce the number of high-risk loans and the paid interest rates, though 35% remains high for borrowers.
Step-by-step explanation:
Regarding the question of maximum allowable payment after closing on a mortgage, the correct answer would be 'c) 20% of the loan amount.' The context for this question likely relates to down payments or potentially to caps on payment adjustments for certain types of adjustable-rate mortgages (ARMs). Typically, a standard down payment is 20%, but there are options for lower down payments such as 0-3.5%. These smaller down payments often necessitate the purchase of mortgage insurance, which serves as protection for the lender in case of default. However, this insurance also increases the overall cost of the mortgage for the borrower.
Additionally, borrowers with ARMs might see their interest rates rise from an initial low rate to a much higher rate, significantly increasing their monthly payment. It's important for homeowners to be aware of these potential increases and to budget accordingly, preventing situations where they could be forced to pay more than 20% of the loan amount at once. As for the usury law, if it limits interest rates to no more than 35%, the likely impact would be a decrease in the total number of high-risk loans issued, as lenders would be less inclined to offer loans with rates that high due to the capped potential for profit. Moreover, borrowers would face less extreme interest rates, although 35% is still significantly high compared to average market rates and would be a burden for most borrowers.