Question

A High-Cost mortgage has a prepayment penalty of 3% when paid off in the first year. If a borrower has a mortgage of $245,000 and pays it all off in their first year owning the mortgage (because he/she won the lottery) how much will the prepayment penalty cost them?

A) $7,350
B) $6,850
C) $7,500
D) $6,500

Answer 1

The prepayment penalty for paying off a $245,000 mortgage in the first year at a 3% rate would be $7,350 (A).

Step-by-step explanation:

If a borrower has a mortgage of $245,000 and there is a prepayment penalty of 3%, we can calculate the cost of the penalty by multiplying the mortgage amount by the penalty rate. The calculation will be:

$245,000 × 0.03 = $7,350.

Therefore, the prepayment penalty cost will be $7,350 if the borrower pays off the mortgage in the first year.

A High-Cost mortgage has a prepayment penalty of 3% when paid off in the first year. If a borrower has a mortgage of $245,000 and pays it all off in their first year owning the mortgage (because he/she won the lottery), the prepayment penalty will cost them $7,350. This can be calculated by multiplying the mortgage amount by the prepayment penalty rate: $245,000 x 0.03 = $7,350.