Larry purchased a ski lodge in Telluride for $850,000. His bank is willing to finance 70% of the purchase price. As part of the mortgage closing costs, Larry had to pay 4% discount points. How much did this amount to?
To calculate the amount Larry paid in discount points, we need to understand what discount points are. Discount points are fees paid to the lender at closing in exchange for a lower interest rate on the mortgage. Each discount point typically costs 1% of the loan amount.
In this case, Larry's bank is willing to finance 70% of the purchase price of $850,000. Let's calculate the loan amount:
Loan Amount = Purchase Price * Financing Percentage
Loan Amount = $850,000 * 70%
Loan Amount = $595,000
Next, we need to calculate the discount points as a percentage of the loan amount:
Discount Points = Loan Amount * Discount Points Percentage
Discount Points = $595,000 * 4%
Discount Points = $23,800
Therefore, Larry paid $23,800 in discount points as part of the mortgage closing costs.