California Real Estate Broker ExaminationFinancingEasy
A buyer is obtaining a 30-year fixed-rate mortgage for $300,000 at an interest rate of 4.0%. The lender charges a loan origination fee of 1% of the loan amount. What is the total amount the buyer will pay for the loan origination fee?
- A$30,000
- B$4,000
- C$3,000
- D$300
Show answer & explanationAnswer & explanation
Correct answer: C. $3,000
A loan origination fee is typically calculated as a percentage of the loan amount. In this case, 1% of $300,000 is $3,000. Calculation: $300,000 * 0.01 = $3,000.
Why the other options are wrong
- A. Incorrect; this would be 10% of the loan amount.
- B. Incorrect; this represents the interest rate as a dollar amount, not the origination fee.
- D. Incorrect; this would be 0.1% or 1/10th of a percent.
Loan Origination Fee
A fee charged by a lender for processing a loan application, typically expressed as a percentage of the loan amount.
- Covers administrative costs of loan processing.
- Paid at closing.
- Commonly 0.5% to 1.5% of the loan amount.
Memory trick: Origination is an 'O'ne-time 'O'verhead.