Question 11
Domain 1: Federal Mortgage-Related LawsHow much does one discount point cost as a percentage of the loan amount?
Correct answer: C
Explanation
One discount point equals 1% of the loan amount, which is the standard definition of a point in mortgage lending. Lenders charge points as prepaid interest, so "one discount point" means "1.00%" of the principal borrowed.
Why each option is right or wrong
A. 0.25%
B. 0.50%
C. 1.00%
Under standard mortgage lending usage, a “point” is defined as 1% of the original loan amount, so the charge for one discount point is calculated at 1.00% of principal. For example, on a $200,000 loan, one point would equal $2,000, which is exactly 1% of the loan amount.
D. 2.00%