California Real Estate Practice Exam

Which of the following is a "penalty payoff"?

1. 2% fee on Cal-Vet loan

2. FHA loan origination fee

3. VA loan origination fee

4. All of the above

The correct answer is: 2% fee on Cal-Vet loan

A "penalty payoff" refers specifically to the charges incurred when a borrower pays off a loan early, which can include fees that lenders impose to recoup potential lost interest from the early repayment. A 2% fee on a Cal-Vet loan fits this definition, as it is a specific example of a penalty that a borrower might face for paying off the loan before the agreed-upon term. On the other hand, loan origination fees, whether for FHA or VA loans, are not considered penalty payoffs. These fees are upfront costs associated with processing the loan rather than penalties for early repayment. Therefore, the first option clearly aligns with the definition of a penalty payoff, making it the correct answer. Understanding the nature of specific fees in various loan types is crucial for borrowers to understand potential costs associated with early repayment.