A building was purchased for $350,000 with a 20% down payment. If the lender charges the buyer three discount points, how much will the buyer pay in points?

Rationale

The buyer will pay $8,400 in points.

The discount points are calculated based on the loan amount, which is derived from the purchase price minus the down payment. The down payment of 20% on a $350,000 purchase results in a loan amount of $280,000, and three points on this amount totals $8,400.

A ($6,160) YOUR ANSWER

This amount represents a miscalculation of discount points. It may have resulted from applying discount points to an incorrect loan amount or miscalculating the percentage. Three points on the loan amount of $280,000 should yield a higher total than this option.

B ($7,000) YOUR ANSWER

This figure is also incorrect as it underestimates the total cost of the points. It likely reflects an erroneous percentage calculation of the loan amount. The actual cost at three points on the correct loan amount is higher than $7,000.

C ($8,400) CORRECT

This is the correct calculation based on the loan amount of $280,000 derived from the purchase price minus the down payment. Three discount points equal 3% of the loan amount, which amounts to $8,400 (0.03 x $280,000).

D ($10,500) YOUR ANSWER

This option overestimates the cost of the points. It may result from mistakenly applying the points to the total purchase price instead of the loan amount. The calculation of discount points must be based on the loan amount of $280,000, which is lower than the total purchase price.

Conclusion

The calculation of discount points is based on the loan amount, which is determined after subtracting the down payment from the purchase price. In this scenario, the buyer's loan amount of $280,000 results in a payment of $8,400 for three discount points. Understanding this calculation is crucial for buyers to accurately assess their closing costs and financial commitments.

A building was purchased for $350,000 with a 20% down payment. If the lender charges the buyer three discount points, how much will the buyer pay in points?

The buyer will pay $8,400 in points.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test