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.

To calculate the cost of the discount points, we first determine the loan amount, which is 80% of the property value of $150,000. This results in a loan amount of $120,000. Since there are 2 discount points charged, which is 2% of the loan amount, the total cost for the discount points is $2,400.

A ($600) YOUR ANSWER

This amount represents 0.5% of the loan amount of $120,000. It does not correspond to 2 discount points, which would require a calculation of 2% of the loan amount. Therefore, this option is incorrect.

B ($1,500) YOUR ANSWER

This amount is 1.25% of the loan amount. However, since the discount points charged are 2%, this calculation does not accurately reflect the correct cost of the discount points, making this choice incorrect.

C ($2,400) CORRECT

This is the correct calculation. The loan amount is $120,000, and 2% of this amount equals $2,400. Therefore, this choice accurately represents the cost of the discount points.

D ($3,000) YOUR ANSWER

This figure represents 2.5% of the loan amount. Given that only 2 discount points were charged, which equates to 2%, this calculation is incorrect and does not reflect the actual cost of the discount points.

Conclusion

The accurate calculation for the cost of the discount points charged on a $150,000 property at an 80% loan-to-value ratio reveals that the cost is $2,400. Each percentage point of discount points represents a portion of the loan amount, and in this case, 2% of the $120,000 loan results in the correct answer. Understanding this calculation is essential for determining financing costs in real estate transactions.

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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