Enter the total loan amount into the calculator to determine the value of one discount point. Note: the loan amount should be only the total value of the loan, not the purchase price.
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Discount Point Formula
The following formula is used to calculate a discount point.
DP = .01 * LA
- Where DP is the discount point ($)
- .01 is the decimal representing 1%
- LA is the total loant amount ($)
Discount Point Definition
A discount point is a term used in real estate to define the value of 1% of a loan amount. These are often used in negotiations for purchasing houses.
For example, a mortgage broker may offer a lower interest rate at the exchange of purchasing a few discount points.
How to calculate discount points?
In this example, a buyer is purchasing a home and negotiates a lower interest rate at the exchange of the purchase of some discount points.
First, determine the total loan amount. For this problem, the house is purchased at $500,000.00 with a $100,000.00 down payment.
Subtracting the downpayment from the purchase price we get a total loan amount of $400,000.00.
During the negotiation, it’s agreed the buyer will purchase 3 discount points for a lower interest rate.
Finally, calculate the value of the discount points purchase above.
DP = .01 * LA
= .01 * 400,000 = $4,000.
Now, multiply this answer by 3 to get the total spent on discount points.
= 3 * $4,000