Question

On September 1, year 1, Jackson borrowed $400,000 to refinance the original mortgage on her principal residence. Jackson paid 2 points to reduce her interest rate from 7.5 percent to 7 percent. The loan is for a 30-year period. How much can Mary deduct in year 1 for her points paid?

Answer 1

$88.88 or $89 (Approx)

Step-by-step explanation:

Each point is equal to the 1 percent so, 2 points is equal to the 2%.

Amount of points paid = Borrowed amount × Points percentage

= $400,000 × 2%

= $8,000

Total number of months = Year × Months in a year

= 30 × 12

= 360

Number of months in the deduction year = September to December

= 4

Amount of deduction:

= (Amount of points paid ÷ Total number of months) × Number of months in the deduction year

= ($8,000 ÷ 360) × 4

= $32,000 ÷ 360

= $88.88 or $89 (Approx)