An owner bought a house for $65,000 and put up $13,000 in cash as a down payment. The owner received a conventional first mortgage loan from a bank and trust that charged the owner 3 points as a service charge for making the loan. What amount will the owner have to pay as the service charge

Rationale

$1,560 will be the service charge the owner has to pay.

The service charge, calculated as a percentage of the loan amount, is determined by multiplying the loan amount by the points charged. In this case, the owner financed $52,000 after the down payment, and with 3 points, the service charge amounts to $1,560.

A ($390) YOUR ANSWER

This amount represents 0.5 points of the loan, which is incorrect. The calculation for points is based on 1% of the loan amount, and 3 points would yield a higher service charge than $390.

B ($1,560) CORRECT

This is the correct answer. The owner’s total loan amount after the down payment is $52,000. With 3 points charged, the service charge is calculated as 3% of $52,000, which equals $1,560.

C ($1,950) YOUR ANSWER

This figure incorrectly assumes a higher point charge than 3 points. To reach $1,950, the points would need to be approximately 3.75% of the loan amount, which does not correspond to the 3 points mentioned in the question.

D ($3,000) YOUR ANSWER

This amount represents 5.77 points of the loan, which is not in line with the 3 points charged. It overestimates the service charge significantly, as the actual charge is based on 3% of the loan amount.

Conclusion

To determine the service charge on the mortgage loan, it is crucial to calculate the points based on the loan amount. With a loan of $52,000 and a service charge of 3 points, the owner must pay $1,560 as the service charge. This rationale illustrates the importance of understanding loan structures and the calculation of points in real estate transactions.

An owner bought a house for $65,000 and put up $13,000 in cash as a down payment. The owner received a conventional first mortgage loan from a bank and trust that charged the owner 3 points as a service charge for making the loan. What amount will the owner have to pay as the service charge

$1,560 will be the service charge the owner has to pay.

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