16. A buyer is planning to purchase a house that costs $120,000. If the buyer obtains an 85% loan and the lender charges a 1.5% loan origination fee and 1.5 discount points, what is the total cost of the origination fee and discount points?
Answer: C
The total cost of the origination fee and discount points is $3,060.
To determine the total cost of the origination fee and discount points, we first calculate the loan amount, which is 85% of $120,000. This equals $102,000. The origination fee, at 1.5%, amounts to $1,530, and the discount points, also at 1.5%, total another $1,530. Therefore, the combined total is $3,060.
A) $1,800
This option incorrectly calculates the total cost of the origination fee and discount points. It may represent only the origination fee or discount points individually but does not account for both together, leading to an underestimation of the actual costs involved.
B) $2,550
This choice does not accurately reflect the total costs either. It may misrepresent a partial sum of the origination fee and discount points but fails to include the complete calculation needed to arrive at the correct total of $3,060.
C) $3,060
This option correctly represents the total costs associated with the origination fee and discount points. With the loan amount calculated as $102,000, the origination fee of 1.5% equals $1,530, and the discount points of 1.5% also equal $1,530, resulting in a total of $3,060.
D) $3,600
This figure is also incorrect as it exceeds the true total. It may mistakenly consider a higher rate or additional costs that are not applicable to the origination fee and discount points, thus leading to an inflated total.
Conclusion
The correct answer of $3,060 accurately encompasses the combined costs of the origination fee and discount points on the loan amount derived from the purchase price. All other options either miscalculate or misinterpret the costs involved, confirming that they are not valid solutions to the question posed.