A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
Correct Answer
D) $8,000
Discount points are calculated as 1% of the loan amount per point. For 2 points on a $400,000 loan: 2% × $400,000 = $8,000. This upfront cost must be weighed against the monthly savings from the lower interest rate to determine if paying points makes financial sense.
Why This Is the Correct Answer
Discount points are calculated as 1% of the loan amount per point. For 2 points on a $400,000 loan: 2% × $400,000 = $8,000. This upfront cost must be weighed against the monthly savings from the lower interest rate to determine if paying points makes financial sense.
More Mortgage Knowledge Questions
A borrower refinances their home with a cash-out refinance loan of $750,000. The original loan balance was $400,000, and they're taking $300,000 in cash. If conforming limits allow $766,550, how is this loan classified?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
Under TRID regulations, discount points must be disclosed on the Loan Estimate in which section?
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