Question

On March 31, year 1, Mary borrowed $180,000 to buy her principal residence. Mary paid 3 points to reduce her interest rate from 4 percent to 3 percent. The loan is for a 30-year period. What is Mary's year 1 deduction for her points paid?

Answer 1

To calculate Mary's year 1 deduction for her points paid, we need to know the amount of points paid and the loan's origination date.

Mary paid 3 points to reduce her interest rate from 4 percent to 3 percent.

One point is equal to one percent of the loan amount. Therefore, the amount of points Mary paid is:

3 points x $180,000 = $5,400

Mary's loan origination date is March 31, year 1.

Since the loan is for a 30-year period, Mary can deduct 1/30th of her points paid each year over the life of the loan.

Therefore, Mary's year 1 deduction for her points paid is:

$5,400 / 30 = $180.

So, Mary's year 1 deduction for her points paid is $180