Question

A loan company will provide a loan to Bill and Hillary for 75% of the appraised value of their home. The interest rate is 10.5%. The first monthly interest payment is $820. The bank requires 4 discount points (hint: a discount point is 1% of the loan amount) to obtain this interest rate. How much will the discount points cost?

Answer 1

The discount points will cost 3749.

Explanation:

The first monthly interest payment is $820.

So, annual interest paid =
`820*12` = $9,840

Now, converting the annual interest to decimal =
`(9840)/(0.105)` = $93,714.28

As given, the bank requires 4 discount points, this becomes 0.04.

So, total loan amount =
`93714.28*0.04` = $3748.57 ≈ $3749

Hence, the discount points will cost 3749.