Finance
What is 'prepayment penalty' in a Kansas mortgage and why is it used?
AA penalty for failing to pay closing costs on time
BA fee charged to a borrower who pays off a mortgage early; it compensates the lender for lost interest income when the loan is repaid ahead of schedule✓ Correct
CA penalty for being late on mortgage payments
DA fee for refinancing within the first year
Explanation
A prepayment penalty compensates lenders for anticipated interest they lose when a borrower pays off a loan early. Many conventional loans today do not have prepayment penalties; FHA and VA loans prohibit them.
People Also Study
Related Kansas Questions
- A Kansas conventional mortgage loan is best described as:Finance
- A Kansas borrower has a $200,000 mortgage at 6% annual interest with a monthly payment of $1,199.10. How much of the first payment goes to principal?Real Estate Math
- A Kansas borrower is charged a prepayment penalty. This means:Finance
- A Kansas borrower has a monthly payment of $1,450 on a $200,000 mortgage at 7% annual interest. What is the interest portion of the first payment?Real Estate Math
- A Kansas borrower with significant student loan debt is applying for a mortgage. How does the lender treat student loan debt in the DTI calculation?Finance
- In Kansas, what is 'private mortgage insurance' (PMI) and when can it be cancelled on a conventional loan?Finance
- A Kansas buyer obtains a $175,000 30-year mortgage. Using a monthly payment factor of $6.65 per $1,000 at 7%, what is the total amount paid in interest over the life of the loan?Real Estate Math
- A Kansas buyer obtains a mortgage of $160,000 at 7% annual interest. What is the first month's interest payment?Real Estate Math
Key Terms to Know
Closing Costs
Fees and expenses paid by the buyer and/or seller at the closing of a real estate transaction, in addition to the property's purchase price.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
Study This Topic
Practice More Kansas Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Kansas Quiz →