67. A borrower pays $200,000 for a home. The buyer makes a down payment of $40,000 and obtains a loan for the balance of the purchase price. The lender charges 4 discount points for the loan. How much will the borrower pay in discount points?
Answer: C
The borrower will pay $6,400 in discount points.
The total loan amount after the down payment is $160,000. With the lender charging 4 discount points on this amount, the borrower will pay $6,400 in discount points.
A) $1,600
This option is incorrect because it represents 1 discount point on a loan amount of $160,000. Since 4 discount points are being charged, the calculation would not yield this amount.
B) $4,000
This option is also incorrect. This amount represents 2.5 discount points on the loan amount of $160,000. The borrower is charged 4 discount points, which results in a higher total.
C) $6,400
This option is correct as it accurately reflects the calculation of 4 discount points on the loan amount of $160,000. The formula is 4% of $160,000, which equals $6,400.
D) $8,000
This option is incorrect as it represents 5 discount points on the $160,000 loan amount. The borrower is charged only 4 points, resulting in a lower total.
Conclusion
The correct answer is $6,400, as it reflects the accurate calculation of 4 discount points based on the remaining loan amount of $160,000. All other options either underestimate or overestimate the points based on the given loan terms, demonstrating a clear understanding of how discount points work in mortgage financing.