On a standard Illinois mortgage closing worksheet, how are discount points calculated?
Correct Answer
A) As a percentage of the loan amount, with each point equal to 1% of the loan
Discount points are prepaid interest charged by the lender to reduce the note's interest rate. Each point equals 1% of the loan amount — not the purchase price, down payment, or appraised value. For example, two points on a $300,000 loan equals $6,000, regardless of the property's sale price or appraised value. This is standard mortgage math applied consistently in Illinois closing worksheets.
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Related Concepts
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
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