45. 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: C
The borrower would pay $14,000 towards the points.
To calculate the amount a borrower would pay towards the points, we first determine the loan amount, which is 80% of the property's value. For a $500,000 property, the loan amount is $400,000. With the lender charging 3.5 discount points, the cost is 3.5% of the loan amount, resulting in $14,000.
A) $1,400
This amount is incorrect because it represents 0.35% of the loan amount, which does not align with the calculation of 3.5 discount points on the loan. The borrower is responsible for the total fee associated with the discount points, which is significantly higher.
B) $1,750
This choice is also incorrect. It reflects a percentage that is much lower than the 3.5% required for discount points on the loan amount. Therefore, it does not accurately represent the borrower's payment towards the points.
C) $14,000
This option is correct as it accurately represents the cost of 3.5 discount points on the $400,000 loan amount, calculated as 3.5% of $400,000, which equals $14,000. This is the correct amount the borrower would pay towards the points.
D) $17,500
This choice is incorrect. It exceeds the correct calculation for the discount points. $17,500 would imply a higher percentage of the loan amount than the 3.5% charged by the lender, thus misrepresenting the borrower's actual cost.
Conclusion
The correct answer, $14,000, precisely reflects the cost of the discount points calculated from the loan amount based on the property's value. The other options either understate or overstate the cost, failing to represent the financial obligation accurately. Thus, option C is definitively the right choice.