Question

Tom and cindy lewis are buying a house with a $300,000 sales price and their ltv will be 80%. assume that they paid no origination fees, but paid $3,600 in discount points. how many total points did they pay?

Answer 1

Answer: Tom and Cindy paid 1.5 discount points.

House Value = $300,000.

Loan-to-Value Ratio (LTV) = 80%

Since LTV is 80%, the total loan (mortgage) value is :

`Mortgage Value = House Value * LTV`

`Mortgage Value = $240,000 (300,000*0.80)`

In the real estate context, a point refers to one percent (1%) of the mortgage amount. There is no rule that these points should be in whole numbers.

We can find the number of points paid as follows:

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`No. of points paid = ((3600)/(240000) )* 100 [/<strong>tex]</strong></p><p><strong>[tex] No. of points paid = 1.5 points.`

There are two types of points:

1. Discount Points: are actually pre-paid interest on the mortgage loan, and help in lowering the interest rate on the mortgage.
2. Origination points : help in covering the costs incurred by the lender in processing the loan.