Three discount points on a $120,000 loan equate to an actual loan amount received by the borrower. What is that amount?

Three discount points on a $120,000 loan equate to an actual loan amount received by the borrower. What is that amount?

• A. $116,400
• B. $120,000
• C. $117,000
• D. $123,000

Answer: (A)

Discount points are prepaid interest paid at closing to lower the loan’s interest rate, with each point costing 1% of the loan amount. Three points on a 120,000 loan equal 3% of 120,000, which is 3,600. The actual amount the borrower receives (net proceeds) is the loan amount minus the points paid: 120,000 − 3,600 = 116,400. So the net amount received is 116,400.

Discount points are prepaid interest paid at closing to lower the loan’s interest rate, with each point costing 1% of the loan amount. Three points on a 120,000 loan equal 3% of 120,000, which is 3,600. The actual amount the borrower receives (net proceeds) is the loan amount minus the points paid: 120,000 − 3,600 = 116,400. So the net amount received is 116,400.