43. A buyer is purchasing $500,000 property with an 80% loan to value. If the lender charges 3.5 discount points, how much would a borrower pay towards the points
Answer: D
The borrower would pay $17,500 towards the points.
In this scenario, the borrower is purchasing a property valued at $500,000 with an 80% loan to value, which means the loan amount is $400,000. With the lender charging 3.5 discount points on the loan amount, the total cost for the points would be $17,500.
A) 1,400
This option is incorrect because $1,400 does not represent the cost of 3.5 discount points on a $400,000 loan. To calculate points, one must take 3.5% of the loan amount, which is significantly higher than this figure.
B) 1,750
This option is also incorrect. While $1,750 might represent a fraction of points, it does not accurately reflect the cost of 3.5 discount points on a $400,000 mortgage. The calculation for 3.5 points results in a much higher total.
C) 14,000
This option is incorrect as well. Although $14,000 is closer to the correct answer, it still does not represent 3.5 discount points calculated on a $400,000 loan. The correct calculation shows that the cost is higher than this amount.
D) 17,500
This option is correct because it accurately represents the cost of 3.5 discount points on a $400,000 loan, which is calculated by multiplying 0.035 (the decimal equivalent of 3.5%) by 400,000, resulting in $17,500.
Conclusion
The correct answer is $17,500, as it precisely reflects the cost of 3.5 discount points on the loan amount derived from the property's purchase price. All other options fail to represent the accurate calculation based on the loan amount and the percentage of the discount points.