West Virginia Mortgage Law Practice Test

The maximum rate of finance charges that may be collected in a subordinate loan transaction is no more than:

1. 12%

2. 15%

3. 18%

4. 20%

The correct answer is: 12%

In West Virginia, the law establishes specific limits on the finance charges that may be assessed on subordinate loan transactions. According to the state's regulations, the maximum allowable rate of finance charges in these cases is capped at 12%. This figure is critical for regulating lending practices and ensuring that borrowers are not subject to excessively high interest rates, which can lead to financial distress. Subordinate loans, often referred to as second mortgages or home equity loans, are considered higher risk since they are secondary to existing loans. As such, the regulation aims to protect consumers by maintaining clear limits on borrowing costs in order to promote responsible lending practices and prevent predatory lending conditions. It is essential for both lenders and borrowers to be aware of these limits to avoid legal issues and ensure fair lending practices. The other options reflect higher rates that exceed the established legal maximum, which would not be permissible within subordinate loan agreements in West Virginia. Understanding these caps and their implications is crucial for anyone engaging in mortgage transactions or studying mortgage law in the state.