Finance
What is a prepaid expense (impound/escrow account) in mortgage lending?
AA deposit for future improvements
BMonthly contributions to an account maintained by the lender for property taxes and insurance✓ Correct
CA prepayment of mortgage principal
DAn advance on the equity line
Explanation
Impound/escrow accounts are maintained by the lender to accumulate monthly contributions from borrowers for property taxes and insurance. When these bills come due, the lender pays them from the account, ensuring they are paid timely.
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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.
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.
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
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