Nationwide Mortgage Licensing System (NMLS) Practice Exam

What is the late fee for a conventional loan?

1. 3% of principal and interest

2. 4% of principal and interest

3. 5% of principal and interest

4. 10% of principal and interest

The correct answer is: 5% of principal and interest

A late fee for a conventional loan is typically calculated as a percentage of the principal and interest that is due but unpaid. In the context of this question, the standard late fee for a conventional loan in many cases is set at 5% of the outstanding principal and interest payment that is overdue. This percentage is a common practice within the mortgage industry, ensuring that lenders have a defined way to penalize borrowers for late payments, while not excessively burdening them. The rationale behind this percentage is to cover the additional costs and risks incurred by the lender when payments are delayed. It functions as an incentive for borrowers to make timely payments. This standardized late fee percentage helps borrowers to have a clear expectation regarding the consequences of late payment, aligning with typical loan agreements. Understanding the standard practices surrounding late fees in conventional loans is crucial for compliance with lending regulations and helping borrowers be informed about their financial responsibilities.