How are discount points calculated from the loan amount?

The calculation of discount points from a loan amount is determined by multiplying the loan amount by the discount points percentage. Discount points are typically expressed as a percentage of the total loan amount, with one discount point equating to one percent.

For example, if you have a loan amount of $200,000 and a discount point rate of 2%, you would calculate the cost of the discount points by taking the loan amount and multiplying it by the discount point percentage, which would yield $4,000 ($200,000 x 0.02 = $4,000). This approach directly correlates the discount points to the size of the loan, making it an essential calculation for buyers and sellers in real estate transactions to understand their financing options and costs.

The other methods do not correctly represent how discount points are calculated in relation to the loan amount.