If a borrower pays 1.5 discount points to reduce their interest rate from 6.5% to 6.0% on a $400,000 loan with a 30-year term, what is their approximate monthly payment savings?
Correct Answer
A) $120
At 6.5%, the monthly payment is approximately $2,528. At 6.0%, it's approximately $2,398. The difference is about $130, making $120 the closest answer. This demonstrates the payment reduction benefit of discount points.
Why This Is the Correct Answer
At 6.5%, the monthly payment is approximately $2,528. At 6.0%, it's approximately $2,398. The difference is about $130, making $120 the closest answer. This demonstrates the payment reduction benefit of discount points.
More Mortgage Knowledge Questions
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?
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?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
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?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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