Question

Tom and cindy lewis are buying a house with a $300,000 sales price and their ltv will be 80%. assume that they paid no origination fees, but paid $3,600 in discount points. how many total points did they pay?

Answer 1

Answer: Tom and Cindy paid 1.5 discount points.

House Value = $300,000.

Loan-to-Value Ratio (LTV) = 80%

Since LTV is 80%, the total loan (mortgage) value is :

$Mortgage Value = House Value * LTV$

$Mortgage Value = 240,000 (300,000*0.80)$

In the real estate context, a point refers to one percent (1%) of the mortgage amount. There is no rule that these points should be in whole numbers.

We can find the number of points paid as follows:

$No. of points paid = (Value of points in dollars /Value of mortgage) *100$

$No. of points paid = (\frac{3600}{240000} )* 100 [/tex][tex] No. of points paid = 1.5 points.$

There are two types of points:

1. Discount Points: are actually pre-paid interest on the mortgage loan, and help in lowering the interest rate on the mortgage.
2. Origination points : help in covering the costs incurred by the lender in processing the loan.