Finance
In Michigan, 'mortgage impound accounts' benefit lenders because they:
AGenerate additional interest income for the lender
BEnsure property taxes and insurance premiums are paid, protecting the lender's collateral✓ Correct
CAllow the lender to invest borrower funds for profit
DReduce the borrower's monthly payment
Explanation
Impound (escrow) accounts for taxes and insurance protect the lender's collateral by ensuring these critical obligations are paid. If taxes go unpaid, a tax lien could take priority over the mortgage; if insurance lapses, the collateral could be unprotected.
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Key Terms to Know
Lien
A financial claim against a property that serves as security for a debt or obligation, giving the creditor the right to foreclose if unpaid.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
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.
Math Concepts
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