Free Pennsylvania Real Estate Practice Exam Practice Question
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 for the points?
Correct Answer: C
Rationale: To determine the cost of the discount points, first calculate the loan amount. With an 80% loan-to-value ratio on a $500,000 property, the loan amount is $400,000 (0.80 x $500,000). Each discount point is 1% of the loan amount, so 3.5 points equals 3.5% of $400,000.
Calculating this gives:
3.5% of $400,000 = 0.035 x $400,000 = $14,000.
Option A ($1,400) incorrectly calculates points based on the property value rather than the loan amount. Option B ($1,750) miscalculates the percentage. Option D ($17,500) overestimates the cost of points. Only option C accurately reflects the cost of the discount points based on the loan amount.
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