Discount points are calculated on which base amount?

Discount points are calculated on which base amount?

• A. Purchase price
• B. Loan amount
• C. Appraised value
• D. Down payment

Answer: (B)

Discount points are prepaid interest used to lower the mortgage’s interest rate, and they’re calculated as a percentage of the loan amount. That means the base amount is the loan amount—the financed principal—not the purchase price, appraised value, or the down payment. For example, one point costs 1% of the loan amount; if you borrow $300,000, one point costs $3,000 and may reduce the rate by a certain amount. The down payment affects how large the loan is, but discount points scale with the loan amount itself.

Discount points are prepaid interest used to lower the mortgage’s interest rate, and they’re calculated as a percentage of the loan amount. That means the base amount is the loan amount—the financed principal—not the purchase price, appraised value, or the down payment. For example, one point costs 1% of the loan amount; if you borrow $300,000, one point costs $3,000 and may reduce the rate by a certain amount. The down payment affects how large the loan is, but discount points scale with the loan amount itself.