60. 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 discount points are calculated based on the loan amount, which is the purchase price minus the down payment. In this case, the loan amount is $200,000 - $40,000 = $160,000, and 4 discount points on this amount equals $6,400.
A) $1,600
This option is incorrect because it represents 1 discount point on a loan amount of $160,000, which would only be 1% of the loan. The calculation for discount points requires multiplying the loan amount by the total number of points, in this case, 4 points.
B) $4,000
This option is also incorrect. It suggests that the borrower would pay 2.5 discount points on the loan amount of $160,000. However, given that the lender charges 4 discount points, the correct calculation would yield a higher amount.
C) $6,400
This option is correct as it accurately represents the total amount paid in discount points. The calculation involves taking 4% of the loan amount of $160,000, which results in $6,400.
D) $8,000
This option is incorrect because it implies the borrower would pay 5 discount points on the loan amount of $160,000. Since only 4 discount points are charged, the total amount cannot reach $8,000.
Conclusion
The correct answer is $6,400 because it directly reflects the calculation of 4 discount points based on the loan amount of $160,000. All other options miscalculate the percentage of discount points owed on the loan, demonstrating a misunderstanding of how discount points are applied to the loan amount.