32. A buyer is purchasing a $500,000 property with an 80% loan to value. If the lender charges 3.5 discount points, how much would a borrower pay toward the points?
Answer: C
The borrower would pay $14,000 toward the points.
To calculate the amount a borrower pays toward discount points, first determine the loan amount. With an 80% loan to value on a $500,000 property, the loan is $400,000. The discount points are calculated as a percentage of the loan amount; thus, 3.5 points equate to $14,000.
A) $1,400
This option is incorrect because it represents a miscalculation of the discount points. A payment of $1,400 would imply a much lower loan amount or a lower percentage of points than what is given in the question.
B) $1,750
This option is also incorrect as it does not accurately reflect the calculation for the discount points. It suggests that 3.5 points apply to a significantly smaller loan amount, which is inconsistent with the provided data.
C) $14,000
This option is correct. The calculation involves taking 3.5% of the loan amount, which is $400,000. Therefore, 3.5 points (3.5% of $400,000) results in a payment of $14,000.
D) $17,500
This option is incorrect because it overestimates the cost of the discount points. At 3.5 points on the loan amount of $400,000, the total does not reach $17,500, indicating a misunderstanding of the discount points calculation.
Conclusion
The correct answer is $14,000 because it accurately reflects the cost of 3.5 discount points applied to an $400,000 loan, derived from an 80% loan to value on a $500,000 property. All other options miscalculate the amount based on incorrect interpretations of the loan details provided in the question.