Real Estate Math Problem – Calculating Points

When your buyer is getting a loan, their lender will ask them whether or not they want to pay points at closing.  A point is an upfront payment of interest on the loan.  In return for paying points upfront, the lender will offer your buyer a lower interest rate.  For example, a lender could offer a choice between 3.75% with 0 points or 3.5% with 2 points.  Another advantage of paying for points upfront is that you can immediately deduct them from your taxes.

You’ll need to know a few things in order to solve this real estate math problem:

  1. One point equates to 1% of the loan amount.

Let’s take an example of the real estate math problem:

ABC Lender offers Mr. and Mrs. Stevens two loan choices for their $200,000, 30-year fixed rate loan.  He offers them a lower interest rate if they can pay 1 point upfront at closing.  How much additional cash must the Stevens have at closing?


The solution to this real estate math problem is:

1 point = 0.1 x Loan Amount

$200,000 x 0.01 = $2,000

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