Question

A borrower is buying a house for $180,000. He provides a down payment of $40,000. If he pays three discount points, what is the total cost of the points?

Answer 1

The total cost of the points is $4,200. Please check the explanation below to help you remember the steps.

Step-by-step explanation:

Discount points are a type of prepaid interest that a borrower can purchase that lowers the amount of interest they have to pay on subsequent payments. Each point is equal to 1% of the loan amount.

The loan amount in this case would be the house price minus the down payment, which is $180,000 - $40,000 = $140,000.

Three discount points would therefore cost 3% of the loan amount.

So, the total cost of the points would be $140,000 * 0.03 = $4,200.

Therefore, the total cost of the points is $4,200.

Answer 2

The total cost of the points is $4,200.

Step-by-step explanation:

To find the total cost of the points, we first need to calculate the amount of the loan. The borrower bought a house for $180,000 and provided a down payment of $40,000. Therefore, the loan amount is $180,000 - $40,000 = $140,000.

Discount points are a type of prepaid interest that the borrower pays to the lender at closing in exchange for a lower interest rate on the loan. Each discount point is equal to 1% of the loan amount.

In this case, the borrower pays three discount points. So the cost of the points is 3% of $140,000, which is $140,000 * 0.03 = $4,200.

Therefore, the total cost of the points is $4,200.