National Real Estate Exam (PSI)FinancingMedium
A borrower obtains a $180,000 loan and the lender charges 2 discount points to lower the interest rate. How much will the borrower pay in points at closing?
- A$5,400
- B$3,600
- C$2,700
- D$1,800
Show answer & explanationAnswer & explanation
Correct answer: B. $3,600
One point equals 1% of the loan amount. 2 points = 2% of $180,000 = $3,600.
Why the other options are wrong
- A. This would be 3 points, not 2.
- C. Incorrect calculation not matching 2% of the loan.
- D. This is only 1% of the loan, or 1 point.
Discount Points
Prepaid interest charged by a lender to reduce the interest rate on a loan; each point equals 1% of the loan amount.
- 1 point = 1% of loan amount
- Paid at closing to buy down the rate
- More points typically mean a lower interest rate
Memory trick: Each point is one percent paid up front to push the rate down.