A buyer in Metairie, Louisiana, purchases an immovable property for $320,000. The buyer obtains a conventional mortgage with an 80% loan-to-value ratio. The lender charges 2 discount points at closing. What is the total dollar amount the buyer pays for the discount points?
Correct Answer
A) $5,120
Step 1 — Calculate the loan amount: $320,000 × 80% = $256,000. Step 2 — Calculate the cost of 2 discount points: 1 point = 1% of the loan amount, so 2 points = 2% × $256,000 = $5,120. Discount points are calculated on the loan amount, not the purchase price. This distinction is critical in Louisiana where the mortgage (not deed of trust) secures the loan amount.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
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