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 discount points, the borrower first determines the loan amount, which is $200,000 minus the down payment of $40,000, resulting in a loan of $160,000. At a rate of 4 discount points, the borrower will pay 4% of the loan amount, equating to $6,400.
A) $1,600
This option is incorrect because $1,600 represents 1% of the loan amount of $160,000, which does not correspond to the 4 discount points charged by the lender.
B) $4,000
This option is incorrect because $4,000 is the amount calculated by taking 2.5% of the loan amount of $160,000. It does not reflect the 4 discount points that the lender charges.
C) $6,400
This option is correct as it accurately represents the cost of 4 discount points on a loan of $160,000. Calculating 4% of $160,000 results in $6,400, which aligns with the discount points charged.
D) $8,000
This option is incorrect because $8,000 represents 5% of the loan amount of $160,000, which exceeds the 4 discount points charged by the lender.
Conclusion
The calculation of $6,400 as the cost of 4 discount points is correctly derived from the loan amount after the down payment. All other options miscalculate the discount points based on incorrect percentages of the loan amount. Thus, option C is definitively the right answer.