10. The terms of a mortgage call for a borrower to pay $4,800 in loan discount points. If the mortgage is $80,000, how many discount points have to be paid
Answer: D
6 discount points have to be paid.
To determine the number of discount points that need to be paid on a mortgage, the formula used is: (Loan Discount Points / Mortgage Amount) x 100. In this case, $4,800 in discount points on an $80,000 mortgage translates to 6 discount points.
A) 3
Option A is incorrect because paying 3 discount points would only amount to $2,400 ($80,000 x 0.03), which is significantly less than the required $4,800.
B) 4
Option B is incorrect as well, since paying 4 discount points would equal $3,200 ($80,000 x 0.04). This amount does not meet the $4,800 required for the mortgage.
C) 5
Option C is also incorrect. Paying 5 discount points results in $4,000 ($80,000 x 0.05), which is still below the total amount of discount points that must be paid.
D) 6
Option D is correct because paying 6 discount points amounts to $4,800 ($80,000 x 0.06), which matches the terms of the mortgage precisely.
Conclusion
The correct answer is 6 discount points, as it accurately reflects the total of $4,800 required on an $80,000 mortgage. All other options fall short of this requirement, demonstrating an understanding of how discount points are calculated in relation to the overall loan amount.