What is the cash cost of 2 discount points on a $100,000 loan?

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Study for the Burk Baker National Test. Use flashcards and multiple choice questions with hints and explanations to prepare effectively. Get ready for your exam!

Multiple Choice

What is the cash cost of 2 discount points on a $100,000 loan?

Explanation:
Discount points are prepaid interest used to buy down the loan’s rate. Each point costs 1% of the loan amount. So two points cost 2% of the loan. For a $100,000 loan, 2% equals $2,000. That is the cash paid at closing for the points (though sometimes points can be financed into the loan, the cash cost at closing is $2,000).

Discount points are prepaid interest used to buy down the loan’s rate. Each point costs 1% of the loan amount. So two points cost 2% of the loan. For a $100,000 loan, 2% equals $2,000. That is the cash paid at closing for the points (though sometimes points can be financed into the loan, the cash cost at closing is $2,000).

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