New York State Real Estate Salesperson Licensing Exam

What is the maximum allowable limit on points charged at closing according to TILA?

1. 3% of the loan value

2. 5% of the loan value

3. No limit

4. 1% of the loan value

The correct answer is: 3% of the loan value

The Truth in Lending Act (TILA) sets certain guidelines to ensure that consumers are fully informed about the costs of borrowing. One key component of TILA is the regulation of points, which are fees paid to the lender at closing in exchange for a reduced interest rate on the loan. The allowable limit on points plays a critical role in protecting consumers from excessive fees. The correct answer indicates that the maximum allowable limit on points charged at closing is 3% of the loan value. This means that for any mortgage loan, the lender cannot charge more than 3% of the total loan amount in points, which helps to keep borrowing costs within reasonable bounds and allows borrowers to better understand their financial commitments. Understanding this limit is crucial for anyone involved in real estate transactions, as it directly affects the overall affordability and transparency of lending processes. It ensures that borrowers are not subject to exorbitant fees that could significantly increase the cost of their loan.