How much will the borrower pay in discount points?

Rationale

The borrower will pay $8,000 in discount points.

Discount points are calculated as a percentage of the loan amount. In this case, the borrower obtains a loan for $160,000 ($200,000 purchase price minus $40,000 down payment). At a rate of 4 discount points, the borrower will pay $6,400, which is 4% of the loan amount.

A ($1,600) YOUR ANSWER

This amount represents 1% of the loan amount, which is not the correct calculation for 4 discount points. Discount points are typically calculated as a percentage of the total loan amount, and this value does not reflect the 4 points charged in this scenario.

B ($4,000) YOUR ANSWER

This figure represents 2.5% of the loan amount, which also does not accurately reflect the cost of 4 discount points. The calculation for discount points needs to be based on the total loan amount of $160,000, and 2.5% is insufficient to cover the 4 points required by the lender.

C ($6,400) CORRECT

This is the correct amount when calculating 4 discount points from the loan amount of $160,000. The calculation is 4% of $160,000, resulting in $6,400, which indicates the cost to the borrower for obtaining the loan under these terms.

D ($8,000) YOUR ANSWER

This amount represents 5% of the loan amount, which is incorrect for this scenario. The borrower is only charged 4 discount points, and the calculation for 5% does not reflect the lender's stated terms.

Conclusion

In this scenario, the borrower pays $6,400 in discount points, calculated as 4% of the $160,000 loan amount. Understanding how to calculate discount points is crucial for borrowers, as it directly impacts the overall cost of securing a loan. By accurately applying the percentage to the loan amount, borrowers can make informed financial decisions when purchasing a home.

How much will the borrower pay in discount points?

The borrower will pay $8,000 in discount points.

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