A property sold for $150,000. The loan-to-value ratio was 80% and there were 2 discount points charged. Which of the following was the cost of the discount points

Rationale

The cost of the discount points was $2,400.

The loan amount is determined by multiplying the property value by the loan-to-value ratio. In this case, 80% of $150,000 is $120,000. Each discount point is typically 1% of the loan amount, so 2 discount points would cost 2% of $120,000, which equals $2,400.

A ($600) YOUR ANSWER

This amount represents only 0.5% of the loan amount of $120,000. It does not reflect the cost of two discount points, which are calculated as a percentage of the total loan. Therefore, $600 is significantly lower than the actual cost.

B ($1,500) YOUR ANSWER

This figure represents 1.25% of the loan amount of $120,000. While it is closer to the correct calculation than $600, it still does not account for the full 2% cost associated with two discount points. Hence, $1,500 is not the correct cost.

C ($2,400) CORRECT

This amount accurately reflects the cost of the two discount points charged on the loan amount of $120,000. Each point costs 1% of the loan, totaling 2% for two points, which indeed equals $2,400.

D ($3,000) YOUR ANSWER

This amount corresponds to 2.5% of the loan amount of $120,000. It exceeds the correct calculation, as the cost for two discount points should only be 2% of the loan amount. Thus, $3,000 is an overestimation of the cost.

Conclusion

The calculation of discount points is essential for understanding loan costs. In this scenario, two discount points on a loan amount of $120,000 lead to a cost of $2,400. The other choices either underestimate or overestimate this cost, emphasizing the importance of accurately applying the percentage related to the loan-to-value ratio in financial calculations.

A property sold for $150,000. The loan-to-value ratio was 80% and there were 2 discount points charged. Which of the following was the cost of the discount points

The cost of the discount points was $2,400.

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