FinanceIntermediateNorth Carolina Exam

A deed of trust differs from a mortgage primarily because it:

ARequires the borrower to pay a higher interest rate, under this approach

BInvolves three parties: borrower, lender, and a trustee who holds titleCorrect

CIs only available for commercial properties

DDoes not secure the loan against the real property

Why Involves three parties: borrower, lender, and a trustee who holds title Is Correct

Answer B: Involves three parties: borrower, lender, and a trustee who holds title

A deed of trust involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee) who holds title until the loan is repaid. A mortgage involves only two parties.

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

Deed of Trust

A security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.

Deed

A written legal instrument used to transfer ownership of real property from one party (grantor) to another (grantee).

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Key Terms to Know

Deed of Trust

A security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.

Deed

A written legal instrument used to transfer ownership of real property from one party (grantor) to another (grantee).

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.

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.