West Virginia Mortgage Law Practice Test

The total amount of points and fees collected on a loan cannot exceed:

1. 10% of the loan amount

2. 15% of the loan amount

3. 20% of the loan amount

4. 5% of the loan amount

The correct answer is: 10% of the loan amount

The correct response indicates that the total amount of points and fees collected on a loan cannot exceed 10% of the loan amount. This aligns with regulations that aim to ensure that borrowers are protected from excessive fees that could make financing disproportionately expensive. The 10% cap helps maintain a balance, ensuring that while lenders can charge for risk and service, they cannot impose excessive costs that could lead to borrower hardships. The importance of this limit is particularly significant in the context of consumer protection laws, which are designed to promote fair lending practices. By keeping points and fees within a reasonable range, individuals seeking loans can better understand their financial obligations and make informed decisions. In the context of the other options, they represent higher thresholds for points and fees which could potentially enable predatory lending practices. These higher limits could lead to situations where borrowers find themselves locked into debt due to excessive upfront costs, therefore it is essential for lending regulations to enforce a reasonable cap like 10% to protect borrowers.