A borrower takes a loan of $284,000 and pays 1.5 discount points plus a 1% origination fee. What is the combined dollar cost of the discount points and origination fee, using the loan amount as the calculation base?
Correct Answer
A) $7,100 in total: $4,260 in points and $2,840 in origination fee
A point is one per cent of the loan amount, so 1.5 points on $284,000 is $4,260 and the 1% origination fee is $2,840, giving $7,100. Other choices: the origination fee is paid at closing like the points; the percentages apply to the loan amount rather than the purchase price, which happens to coincide here only because no downpayment figure was given; and the two charges are separate rather than one. Source: Points arithmetic; no program parameter asserted
Why This Is the Correct Answer
A point is one per cent of the loan amount, so 1.5 points on $284,000 is $4,260 and the 1% origination fee is $2,840, giving $7,100. Other choices: the origination fee is paid at closing like the points; the percentages apply to the loan amount rather than the purchase price, which happens to coincide here only because no downpayment figure was given; and the two charges are separate rather than one. Source: Points arithmetic; no program parameter asserted
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