Robert is purchasing a single-family home in Lexington, Massachusetts for $750,000. He is obtaining a conventional mortgage with a loan-to-value ratio of 80%. The lender charges 1.5 discount points at closing. What is the total dollar amount Robert will pay in discount points?
Correct Answer
D) $9,000
Step 1: Calculate the loan amount. Loan Amount = Purchase Price × LTV = $750,000 × 80% = $600,000. Step 2: Calculate discount points. Each discount point equals 1% of the loan amount. Total Points Cost = Loan Amount × Points Percentage = $600,000 × 1.5% = $600,000 × 0.015 = $9,000. Robert pays $9,000 in discount points.
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Related Topics & Key Terms
Key Terms:
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
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.
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