Discount points Flashcards
1
Q
Discount points are based on ___ amount
A
loan amount
2
Q
Discount points are charged as ___ interest at the closing
A
prepaid interest
3
Q
Discount points are an up-front charge paid at _____ to increase lender’s yield
A
closing
4
Q
When are discount points typically used, on what kind of loan?
A
- on a lower-than-market-interest rate loan
- typically paid upfront for a long-term, lower interest rate
5
Q
The fee to each discount point is equal to ___% of the loan amount
A
1%
6
Q
How do you calculate the cost of a discount point?
A
loan amount * number of points * .01 = cost of points
7
Q
Each discount point increases the yield by about ____ of ___
A
1/8 (0.125) of 1%
8
Q
The approximate yield is also called ____ yield
A
effective yield
9
Q
How do you calculate the total yield?
A
Add the increased yield resulting from the discount points to the stated interest rate
