California Real Estate SalespersonFinancingEasy
A borrower obtains a $340,000 loan and the lender charges 1.75 discount points at closing. How much will the borrower pay in points?
- A$3,400
- B$8,500
- C$1,750
- D$5,950
Show answer & explanationAnswer & explanation
Correct answer: D. $5,950
One point equals 1% of the loan amount. 1.75% of $340,000 = 0.0175 × $340,000 = $5,950.
Why the other options are wrong
- A. This equals 1% of the loan, not 1.75%.
- B. This overstates the calculation by using 2.5% instead of 1.75%.
- C. This would be the amount for 0.5 points on a $350,000 loan, not this scenario.
Discount Points
A point equals 1% of the loan amount, paid upfront to the lender, often to lower the loan's interest rate.
- 1 point = 1% of loan amount
- Points are calculated on the loan amount, not sale price
- Paying points can lower the interest rate ('buying down' the rate)
Memory trick: Point = Percent of Principal.