Discount points are calculated as a percentage of which amount?

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Study for the Washington Real Estate Fundamentals Rockwell Exam. Utilize flashcards, multiple choice questions with hints and explanations. Prepare thoroughly for your real estate career!

Multiple Choice

Discount points are calculated as a percentage of which amount?

Explanation:
Discount points are prepaid interest charged to obtain a lower mortgage rate, and they are calculated as a percentage of the loan amount. Each point is 1% of the amount borrowed, so if the loan is $350,000, one point costs $3,500. The basis is the loan amount because the points are a financing charge tied to the debt you’re taking on, not to the purchase price, your down payment, or the property's appraised value.

Discount points are prepaid interest charged to obtain a lower mortgage rate, and they are calculated as a percentage of the loan amount. Each point is 1% of the amount borrowed, so if the loan is $350,000, one point costs $3,500. The basis is the loan amount because the points are a financing charge tied to the debt you’re taking on, not to the purchase price, your down payment, or the property's appraised value.

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