Rationale
The cost of the discount points was $2,400.
To calculate the cost of the discount points, we first determine the amount of the loan by multiplying the property value of $160,000 by the loan-to-value ratio of 80%. This results in a loan amount of $128,000. Since there are 2 discount points charged, each point being 1% of the loan amount, the total cost of the discount points is $2,400.
A) 600
This amount represents 0.5% of the loan amount ($128,000), which is not equivalent to the cost of 2 discount points. The calculation for discount points must reflect 2% of the loan amount, making this choice incorrect.
B) 1,500
This value corresponds to approximately 1.17% of the loan amount ($128,000). Since the cost of discount points is based on 2% of the loan amount, this option does not accurately reflect the total cost for 2 points, rendering it incorrect.
C) 2,400
This choice correctly calculates the cost of the 2 discount points at 1% each of the loan amount of $128,000. Therefore, 2 points equate to $2,400, making this the accurate answer.
D) 3,000
This amount represents approximately 2.34% of the loan amount ($128,000), which exceeds the total cost of the 2 discount points. Since the calculation is based on 2% of the loan amount, this value is incorrect.
Conclusion
The total cost of the discount points for a property valued at $160,000 with an 80% loan-to-value ratio is derived from calculating 2% of the loan amount of $128,000, resulting in $2,400. The other options fail to correctly represent the cost of the discount points based on the given loan amount and percentage. Thus, understanding the loan-to-value ratio and the nature of discount points is crucial for accurate mortgage calculations.
