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

Borrower has to pay 4 discount points.

Discount points are calculated as a percentage of the loan amount. In this case, $3,200 represents 4% of the $80,000 mortgage, indicating that the borrower needs to pay 4 discount points.

A (3) YOUR ANSWER

If the borrower were to pay 3 discount points, that would equate to 3% of the loan amount. Calculating 3% of $80,000 gives $2,400, which does not match the required payment of $3,200. Therefore, this choice underestimates the number of discount points.

B (4) CORRECT

This choice is correct because 4 discount points represent 4% of the loan amount. Calculating 4% of $80,000 results in $3,200, which matches the given amount to be paid. Thus, the borrower has to pay 4 discount points.

C (5) YOUR ANSWER

Paying 5 discount points would mean paying 5% of the loan amount. When calculating 5% of $80,000, the total comes to $4,000. This amount exceeds the required $3,200, making this option incorrect.

D (6) YOUR ANSWER

Choosing 6 discount points implies a payment of 6% of the loan amount. Calculating 6% of $80,000 results in $4,800, which is significantly higher than the required $3,200. Therefore, this choice is also incorrect.

Conclusion

In a mortgage scenario, discount points directly correlate with the percentage of the loan amount. In this instance, the borrower must pay 4 discount points, translating to a payment of $3,200 on an $80,000 mortgage. The other options represent incorrect calculations of discount points, highlighting the need for precise percentage understanding in mortgage agreements.

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?

Borrower has to pay 4 discount points.

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