Mortgage Loan Originator (MLO) Licensing Practice Test

What is a typical requirement for calculating per diem interest?

1. A 360-day year

2. A 365-day year

3. A 30-day month

4. Borrower’s credit score

The correct answer is: A 365-day year

When calculating per diem interest, a common practice is to use a 365-day year for precision in interest calculations. This approach reflects the actual number of days in a typical year, which ultimately helps provide an accurate daily interest charge. By using a 365-day year, lenders ensure that the interest charged corresponds more closely to the actual days the loan is outstanding. In contrast, a 360-day year is sometimes used in certain financial products or terms, but using 365 days is generally recognized in mortgage lending as being more reflective of real-world timeframes. A 30-day month is not standard for per diem calculations as interest is typically charged based on the actual number of days in the month. The borrower's credit score does not directly pertain to the calculation of per diem interest; it influences loan terms and rates but does not enter into the formula for calculating daily interest on a loan.