34. A buyer is purchasing a $500,000 property with an 80% loan-to-value ratio. If the lender charges 3.5 discount points, how much would the borrower pay towards the points?
Answer: C
The borrower would pay $14,000 towards the points.
To calculate the amount the borrower pays towards the points, we first determine the loan amount based on the 80% loan-to-value ratio. For a $500,000 property, the loan amount is $400,000 (80% of $500,000). With 3.5 discount points charged, which equates to 3.5% of the loan amount, the total cost is $14,000.
A) $1,400
This option is incorrect because $1,400 represents only 0.35% of the loan amount of $400,000, which is not the amount calculated for 3.5 discount points.
B) $1,750
This option is also incorrect as it reflects a calculation of 0.4375% of the loan amount. The borrower would not pay $1,750 based on the points calculated from the loan amount.
C) $14,000
This is the correct answer. The calculation involves taking 3.5% of the loan amount of $400,000, resulting in a payment of $14,000 for the points.
D) $17,500
This option is incorrect. It suggests an amount that would correspond to 4.375% of the loan amount, which does not align with the 3.5 discount points charged in this scenario.
Conclusion
The correct answer is $14,000 because it accurately reflects the cost of 3.5 discount points on a loan amount of $400,000. Other options fail to represent either the correct percentage or the appropriate calculations based on the given loan-to-value ratio.