1. A borrower pays $4,500 for 1.5 discount points. What is the loan amount?
Answer & explanation
Answer: C. Loan = cost of points / points as a percentage = $4,500 / 0.015 = $300,000.
finance
discount points
Fees paid to a lender at closing to lower the interest rate on a loan, a practice called buying down the rate. One point equals 1% of the loan amount, not the purchase price. Points increase the lender's yield and can be paid by the buyer or seller depending on the contract and loan rules.
- Exam tip
- One point equals 1% of the loan amount. A classic trap is calculating points on the sale price instead of the loan.
- Example
- On a $240,000 loan, two discount points cost $4,800 and might reduce the interest rate by about half a percent.
Related terms & state variants
Sources
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Last verified: 2026-10-23