A buyer is planning to purchase a house that costs $120,000. If the buyer obtains an 85% loan and the lender charges a 1.5% loan origination fee and 1.5 discount points, what is the cost of these expenses

Rationale

$3,060 is the total cost of the origination fee and discount points.

To calculate the total cost, we first determine the loan amount, which is 85% of the house price ($120,000). This gives us a loan amount of $102,000. The loan origination fee is 1.5% of this amount, and the discount points, also at 1.5%, are calculated similarly. The sum of these two amounts equals the total cost.

A ($1,800) YOUR ANSWER

This option represents the origination fee alone, calculated as 1.5% of the loan amount ($102,000). It does not include the cost of the discount points, which also needs to be considered in the total calculation. Therefore, this choice is incomplete.

B ($2,550) YOUR ANSWER

This figure could be mistakenly derived from a partial calculation, perhaps considering only the discount points or an incorrect percentage. However, it fails to account for both the origination fee and the discount points, leading to an understated total cost.

C ($3,060) CORRECT

Correctly calculated, the origination fee is $1,530 (1.5% of $102,000) and the discount points also total $1,530 (1.5% of $102,000). Adding these amounts together gives a total of $3,060, accurately reflecting the combined costs.

D ($3,600) YOUR ANSWER

This option may represent an incorrect calculation, possibly assuming a higher percentage for either the origination fee or the discount points. However, the calculations provided above show that the actual total is lower than this figure, indicating that this choice is not based on the correct loan parameters.

Conclusion

The total cost of the origination fee and discount points for an 85% loan on a $120,000 house is $3,060. This total is derived from adding the costs of both the origination fee and the discount points, which are calculated as 1.5% of the loan amount. Understanding these calculations is crucial for buyers to accurately assess their total upfront costs when obtaining a mortgage.

A buyer is planning to purchase a house that costs $120,000. If the buyer obtains an 85% loan and the lender charges a 1.5% loan origination fee and 1.5 discount points, what is the cost of these expenses

$3,060 is the total cost of the origination fee and discount points.

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