If the loan balance is 76,500 and discount points are 2 percent, what is the cost of the discount points?

If the loan balance is 76,500 and discount points are 2 percent, what is the cost of the discount points?

• A. 1,000
• B. 1,530
• C. 1,800
• D. 2,000

Answer: (B)

Discount points are upfront interest paid to reduce the loan’s interest rate, so their cost is a percentage of the loan balance. Here, 2 percent of 76,500 equals 0.02 × 76,500. Multiplying 76,500 by 0.02 gives 1,530. (You can also see it as 76,500 × 2 = 153,000, then divide by 100 to get 1,530.) So the cost of the discount points is 1,530 dollars.

Discount points are upfront interest paid to reduce the loan’s interest rate, so their cost is a percentage of the loan balance. Here, 2 percent of 76,500 equals 0.02 × 76,500. Multiplying 76,500 by 0.02 gives 1,530. (You can also see it as 76,500 × 2 = 153,000, then divide by 100 to get 1,530.) So the cost of the discount points is 1,530 dollars.