Rationale
Five discount points have to be paid for the mortgage.
In a mortgage, discount points are calculated as a percentage of the loan amount. Each point typically equals 1% of the loan total, and in this case, $4,000 represents 5% of the $80,000 mortgage.
A) 3
If a borrower were to pay 3 discount points, that would equate to $2,400 (3% of $80,000), which is significantly less than the $4,000 specified in the question. Thus, this choice does not satisfy the mortgage terms.
B) 4
Paying 4 discount points would amount to $3,200 (4% of $80,000). While this is closer to the required payment, it still falls short of the $4,000 needed to fulfill the mortgage terms.
C) 5
This option correctly calculates the discount points. Paying 5 points means paying $4,000, as 5% of $80,000 equals $4,000. This aligns perfectly with the loan terms outlined in the question.
D) 6
If a borrower pays 6 discount points, that would total $4,800 (6% of $80,000). This exceeds the required $4,000 payment, making it an incorrect choice for the specified mortgage terms.
Conclusion
The calculation of discount points in a mortgage is essential for understanding the cost associated with the loan. In this instance, paying 5 discount points, or $4,000, meets the requirement for the $80,000 mortgage, ensuring the borrower adheres to the terms set forth. All other options either underpay or overpay, confirming that five points is the precise calculation needed.
