New York Real Estate Salesperson ExaminationReal Estate CalculationsEasy
A buyer is obtaining a $280,000 loan to purchase a home. The lender charges an origination fee of 1.5% and a discount fee of 0.5%. What is the total cost of these loan fees in dollars?
- A$2,800
- B$4,200
- C$1,400
- D$5,600
Show answer & explanationAnswer & explanation
Correct answer: D. $5,600
First, add the percentages for the origination fee and discount fee: 1.5% + 0.5% = 2%. Then, calculate 2% of the loan amount: $280,000 * 0.02 = $5,600.
Why the other options are wrong
- A. This calculates 1% of the loan amount, missing one of the fees or miscalculating the sum.
- B. This calculates only the origination fee.
- C. This calculates only the discount fee.
Loan Origination & Discount Fees
Fees charged by a lender to cover the administrative costs of processing a loan (origination) and/or to reduce the interest rate over the life of the loan (discount points).
- Both are typically expressed as a percentage of the loan amount.
- Origination fees cover lender's administrative costs.
- Discount points 'buy down' the interest rate.
Memory trick: Combine the percentages, then multiply by the loan, no hesitations.