27. The terms of a mortgage call for a borrower to pay $3,200 in loan discount points. If the mortgage is $80,000, how many discount points have to be paid?
Answer: B
4 discount points have to be paid.
To determine the number of discount points to be paid, we can use the formula where discount points equal the total amount paid in points divided by the loan amount, multiplied by 100. In this case, $3,200 divided by $80,000 equals 0.04, which means there are 4 discount points.
A) 3
Option A is incorrect because if the borrower were to pay 3 discount points, the total amount would be $2,400 ($80,000 x 0.03), which does not match the amount of $3,200 stated in the question.
B) 4
Option B is correct as it accurately represents the calculation of discount points. The total of $3,200 divided by the mortgage amount of $80,000 gives 0.04, which translates to 4 discount points when expressed as a percentage (0.04 x 100).
C) 5
Option C is incorrect because paying 5 discount points would result in a total fee of $4,000 ($80,000 x 0.05), which exceeds the specified $3,200 payment.
D) 6
Option D is also incorrect. If the borrower were to pay 6 discount points, the total would be $4,800 ($80,000 x 0.06), which is significantly higher than the amount required.
Conclusion
The correct answer is B, as it correctly reflects the calculation based on the given amount paid in discount points. Options A, C, and D do not align with the financial parameters set forth in the question, making them incorrect choices. This exercise emphasizes the importance of understanding how discount points function in relation to mortgage costs.