Real Estate Math
A Connecticut borrower pays 2 discount points on a $300,000 mortgage. How much does this cost?
A$3,000
B$4,500
C$6,000✓ Correct
D$9,000
Explanation
1 point = 1% of loan amount = $3,000. 2 points = 2 × $3,000 = $6,000.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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