A buyer purchases a house for $100000 and is approved for a loan of $75000. What is the amount charged for points with 2.5 discount points?

Rationale

The amount charged for points with 2.5 discount points is $1,875.

The cost of discount points is calculated as a percentage of the loan amount. In this case, 2.5 discount points applied to a $75,000 loan results in a charge of $1,875.

A ($625) YOUR ANSWER

This amount represents 0.83 points of the loan ($75,000 x 0.0083), which is significantly lower than the specified 2.5 points. Therefore, $625 cannot be the correct charge for 2.5 discount points.

B ($1,875) CORRECT

This is the correct calculation: 2.5 points on a $75,000 loan equals $75,000 x 0.025 = $1,875. Discount points are essentially prepaid interest, and this amount accurately reflects the cost of 2.5 points.

C ($2,250) YOUR ANSWER

This figure represents 3 points of the loan ($75,000 x 0.03), which exceeds the 2.5 points charged in this scenario. Hence, $2,250 does not reflect the correct charge for 2.5 discount points.

D ($2,500) YOUR ANSWER

This amount corresponds to 3.33 points of the loan ($75,000 x 0.0333). Since the charge is for 2.5 points, $2,500 is not applicable and thus incorrect.

Conclusion

In this scenario, calculating the cost of 2.5 discount points on a $75,000 loan yields $1,875, the correct answer. Understanding how discount points work is crucial for buyers to assess their closing costs effectively. The incorrect options illustrate common miscalculations based on point percentages that do not align with the given 2.5 points.

A buyer purchases a house for $100000 and is approved for a loan of $75000. What is the amount charged for points with 2.5 discount points?

The amount charged for points with 2.5 discount points is $1,875.

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