Florida Real Estate Sales Associate Examination Content OutlineReal Estate FinanceMedium
A buyer is obtaining a 30-year fixed-rate mortgage for $250,000 at an interest rate of 6% per annum. The lender charges 2 discount points at closing. How much will the buyer pay for these discount points?
- A$7,500
- B$5,000
- C$2,500
- D$15,000
Show answer & explanationAnswer & explanation
Correct answer: B. $5,000
One discount point is equal to 1% of the loan amount. For a $250,000 loan with 2 discount points, the cost is 2% of $250,000. Calculation: $250,000 * 0.02 = $5,000.
Why the other options are wrong
- A. This would be 3 points on a $250,000 loan, or 2 points on a $375,000 loan.
- C. This would be 1 point on a $250,000 loan, or 2 points on a $125,000 loan.
- D. This represents 6% of the loan amount, or 2 points on a $750,000 loan.
Discount Points
Fees paid directly to the lender at closing in exchange for a reduced interest rate on the mortgage.
- One point equals 1% of the loan amount
- Paid upfront by the borrower
- Lowers the interest rate over the life of the loan
- Can be tax-deductible for the borrower
Memory trick: Discount Points: 'Price Points' for a lower rate.