Question

A loan company will provide a loan to Bill and Hillary for 75% of the appraised value of their home. The interest rate is 10.5%. The first monthly interest payment is $820. The bank requires 4 discount points (hint: a discount point is 1% of the loan amount) to obtain this interest rate. How much will the discount points cost?

Answer 1

Answer:

The discount points will cost 3749.

Step-by-step explanation:

The first monthly interest payment is $820.

So, annual interest paid = $820\times12$ = $9,840

Now, converting the annual interest to decimal = $\frac{9840}{0.105}$ = $93,714.28

As given, the bank requires 4 discount points, this becomes 0.04.

So, total loan amount = $93714.28\times0.04$ = $3748.57 ≈ $3749

Hence, the discount points will cost 3749.