What is Maria's loan amount and the quoted interest rate by the bank? What does she need to do to get a lower interest rate and how much would it cost her?
Maria applies for a loan of $300,000 and is quoted a rate of 6.5% by the bank. She wants to obtain a lower interest rate of 6% and is informed by the loan agent that in order to do so, she would have to pay 4 discount points at closing. Discount points are fees paid to the lender at closing to secure a lower interest rate.
Understanding Discount Points
Maria's Loan Amount and Quoted Interest Rate: Maria's loan amount is $300,000 with a quoted interest rate of 6.5% by the bank. However, she seeks to lower this rate to 6%.
Cost of Obtaining Lower Interest Rate
To reduce her interest rate to 6%, Maria needs to pay 4 discount points at closing. Each discount point is equivalent to 1% of the loan amount. In this case, she would have to pay $12,000 to the lender ($300,000 x 0.04 = $12,000) to secure the 6% rate on her loan.
Therefore, Maria's total cost to obtain the lower interest rate would be $12,000 at closing. This payment would allow her to enjoy a reduced interest rate throughout the loan term.
In conclusion, Maria's loan application process involves understanding discount points and their role in securing a lower interest rate. By paying 4 discount points at closing, Maria can achieve her desired 6% interest rate on the $300,000 loan amount.