If the loan balance is 76,500 and discount points are 2 percent, what is the cost of the discount points?

• A. 1,000
• B. 1,530
• C. 1,800
• D. 2,000

Answer: (B)

Discount points are upfront interest paid to reduce the loan’s interest rate, so their cost is a percentage of the loan balance. Here, 2 percent of 76,500 equals 0.02 × 76,500. Multiplying 76,500 by 0.02 gives 1,530. (You can also see it as 76,500 × 2 = 153,000, then divide by 100 to get 1,530.) So the cost of the discount points is 1,530 dollars.