Mortgage Loan Originator (MLO) Licensing Practice Test

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Mortgage Loan Originator Licensing Test. Utilize diverse question formats, including flashcards and multiple choice, with detailed explanations. Gear up for your MLO exam with comprehensive study material!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

How is the Periodic Rate calculated?

Annual Rate multiplied by Number of Payments in a Year
Annual Rate divided by Number of Payments in a Year
Annual Rate plus Number of Payments in a Year
Annual Rate less Number of Payments in a Year

The correct answer is: Annual Rate divided by Number of Payments in a Year

The periodic rate is a crucial component in understanding loan computations, especially in the context of calculating monthly payments on a mortgage. It represents the interest charged over a specific period, typically expressed in relation to the number of payments made in a year. To arrive at the periodic rate, the annual interest rate is divided by the number of payment periods within a year. For most loans, payments are made monthly, meaning the annual rate is divided by 12. This division provides the interest charge applicable for each payment period, allowing borrowers and lenders to accurately calculate payment amounts and total interest over the life of the loan. Understanding this calculation is essential for both MLOs and borrowers, as it directly influences the affordability of loan payments and helps in comparing different loan products. By using the periodic rate derived from the correct method, borrowers can better gauge their financial obligations over the loan's duration, ensuring transparency and informed decision-making.