FinanceIntermediateCalifornia Exam

What is the primary purpose of the Truth in Lending Act (TILA) as it applies to California residential mortgage loans?

ATo set maximum interest rates on consumer loans, per standard amortization and lending convention

BTo require lenders to disclose the Annual Percentage Rate (APR) and loan terms to borrowersCorrect

CTo prohibit prepayment penalties on all mortgages, under standard California mortgage lending practice

DTo regulate the secondary mortgage market, as typically calculated in residential loan underwriting

Why To require lenders to disclose the Annual Percentage Rate (APR) and loan terms to borrowers Is Correct

Answer B: To require lenders to disclose the Annual Percentage Rate (APR) and loan terms to borrowers

TILA (Regulation Z) requires lenders to clearly disclose the cost of credit, including the APR, finance charges, and loan terms, so borrowers can make informed comparisons. It does not set rate ceilings or prohibit prepayment penalties on all loans.

Exam Tip: Finance

Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.

Key Finance Terms in This Question

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

People Also Study

Key Terms to Know

Discount Points

Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.

Math Concepts

Interest Rate

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