One point is normally equal to what percentage of the principal amount?

One point is normally equal to what percentage of the principal amount?

• A. 1/2
• B. 3
• C. 1
• D. 4

Answer: (C)

One point is commonly understood in the context of mortgage lending to be equal to 1% of the principal amount. When lenders refer to "points," they are typically discussing fees that are charged as a percentage of the loan amount. Therefore, if a borrower is charged one point on a loan of $100,000, they would pay $1,000 (which is 1% of $100,000) as a cost of obtaining that loan. In this case, the correct answer directly aligns with the standard industry practice where one point equals 1% of the principal amount. This definition is essential for understanding how mortgage costs and fees are assessed and helps borrowers gauge the total cost of their loan in relation to various points charged. Understanding this concept is crucial when managing loan negotiations and evaluating multiple loan offers.

One point is commonly understood in the context of mortgage lending to be equal to 1% of the principal amount. When lenders refer to "points," they are typically discussing fees that are charged as a percentage of the loan amount. Therefore, if a borrower is charged one point on a loan of $100,000, they would pay $1,000 (which is 1% of $100,000) as a cost of obtaining that loan.

In this case, the correct answer directly aligns with the standard industry practice where one point equals 1% of the principal amount. This definition is essential for understanding how mortgage costs and fees are assessed and helps borrowers gauge the total cost of their loan in relation to various points charged. Understanding this concept is crucial when managing loan negotiations and evaluating multiple loan offers.