The terms of a mortgage call for a borrower to pay $3,200 in loan discount points. If the mortgage is $80,000, how many discount points have to be paid?

Rationale

Four discount points need to be paid on an $80,000 mortgage for a cost of $3,200.

Discount points are calculated as a percentage of the mortgage amount, where one point equals 1% of the loan value. In this case, $3,200 represents 4% of the $80,000 mortgage, indicating that the borrower must pay four discount points.

A (3) YOUR ANSWER

If only three discount points were paid, this would amount to $2,400 (3% of $80,000), which does not match the required payment of $3,200. Therefore, this choice incorrectly represents the number of points based on the mortgage amount.

B (4) CORRECT

The calculation of discount points is straightforward: $3,200 divided by $80,000 equals 0.04, or 4%. This means that the borrower must indeed pay four discount points on the mortgage.

C (5) YOUR ANSWER

Five discount points would total $4,000 (5% of $80,000), which exceeds the actual amount of $3,200 that the borrower must pay. This option miscalculates the percentage of the mortgage that corresponds to the required payment.

D (6) YOUR ANSWER

Six discount points would result in a substantial payment of $4,800 (6% of $80,000), clearly exceeding the $3,200 required. Thus, this choice is also incorrect, as it significantly overestimates the number of points based on the mortgage amount.

Conclusion

To determine the number of discount points for a mortgage, one must calculate the percentage of the loan amount represented by the cost of the points. In this scenario, paying $3,200 on an $80,000 mortgage correctly translates to four discount points, which is 4% of the total loan. Understanding this calculation is crucial for borrowers navigating mortgage costs effectively.

The terms of a mortgage call for a borrower to pay $3,200 in loan discount points. If the mortgage is $80,000, how many discount points have to be paid?

Four discount points need to be paid on an $80,000 mortgage for a cost of $3,200.

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