NY Real Estate Prep

How to calculate discount points

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One point equals 1% of the loan amount, not the purchase price. Worked examples and the trap the NY exam sets.

Each Point = 1% of the Loan Amount

How to solve it, step by step

  1. Find the loan amount. If you are given a purchase price and a down payment or LTV, compute the loan first.
  2. Multiply the loan amount by 1% for each point.
  3. State the result as a one-time cost paid at closing.

Worked examples

A $400,000 loan with 2 discount points. Cost = $400,000 Γ— 0.02 = $8,000, paid at closing.
The trap version: a $500,000 home with 80% financing and 3 points. The loan is $400,000, so points cost $400,000 Γ— 0.03 = $12,000 β€” not $15,000.

What the NY exam actually asks

The exam almost always gives you the purchase price rather than the loan amount, forcing you to compute the loan first. Points buy down the interest rate and are paid at closing.

Try one yourself

A buyer purchases a $600,000 home with 25% down and pays 2 discount points. What do the points cost?

Show the answer

$9,000. The loan is $600,000 Γ— 0.75 = $450,000. Two points = $450,000 Γ— 0.02 = $9,000. Calculating on the $600,000 price would give $12,000, which is the wrong answer.

Common mistakes

  • Calculating points on the purchase price instead of the loan amount. This is the trap.
  • Confusing discount points with origination fees. Both are 1% of the loan, but only discount points reduce the rate.
  • Forgetting points are a one-time closing cost, not an ongoing charge.

Questions students ask

Do discount points lower the monthly payment?

Indirectly. They buy down the interest rate, which lowers the payment. They are paid upfront at closing.

What is the difference between discount points and origination points?

Both cost 1% of the loan. Discount points reduce the interest rate; origination points pay the lender for processing.

Related formulas

Practise this. The free 10-question math quiz drills these formulas, and the free timed practice exam puts them under exam conditions.
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