66. 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.
To calculate the amount the borrower will pay in discount points, we need to determine the loan amount first, which is $200,000 minus the down payment of $40,000. The loan amount is $160,000, and with 4 discount points charged, the cost in discount points is 4% of $160,000, resulting in $6,400.
A) $1,600
This option miscalculates the discount points by applying the percentage to an incorrect amount. $1,600 would represent 1% of the total loan amount, which does not accurately reflect the 4 discount points charged on the loan.
B) $4,000
Choosing $4,000 suggests that the discount points are based on 2.5% of the loan amount, which is incorrect. The calculation for discount points involves multiplying the loan amount by 4%, not 2.5%.
C) $6,400
This option correctly represents the calculation of discount points. The loan amount of $160,000 multiplied by 4% equals $6,400, accurately reflecting the total cost of the discount points charged by the lender.
D) $8,000
This option incorrectly suggests that the discount points amount to 5% of the loan amount. The calculation does not align with the 4 discount points, which are based on a percentage of the loan amount, leading to an overestimation.
Conclusion
The correct answer of $6,400 accurately represents the cost of the discount points based on the loan amount after the down payment. All other options fail because they either miscalculate the percentage or apply the discount points to the wrong amount. Understanding how discount points function in relation to the loan amount is crucial for accurate financial calculations in real estate transactions.