Explain what we mean by “points” when talking about closing costs for a home purchase. Then calculate the
closing costs for scenario below.
A bank offers a $200,000, 30-year, 3.25% fixed rate loan with closing costs of $1000 plus 2 points.
What is the total amount of the closing costs?

In the context of closing costs for a home purchase, "points" refer to prepaid interest that a borrower can pay upfront to reduce the interest rate on their mortgage. One point is equal to 1% of the loan amount. By purchasing points, the borrower pays more upfront but benefits from lower monthly payments over the life of the loan.

Now, let's break down the closing costs for your scenario.

### Loan Details:
- Loan amount: $200,000
- Interest rate: 3.25%
- Term: 30 years
- Fixed rate
- Closing costs: $1000 + 2 points

### Calculation of Total Closing Costs:
1. **Points:**  
   Each point is 1% of the loan amount.  
   - 1 point = 1% of $200,000 = $2000
   - 2 points = 2 × $2000 = $4000

2. **Other closing costs:**  
   These are given as $1000.

3. **Total Closing Costs:**  
   Add the cost of the points and other closing costs:  
   - $4000 (points) + $1000 (other costs) = **$5000**

### Total closing costs: **$5000**

Would you like more details on the mortgage or anything else?

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Here are 5 related questions to consider:
1. How do points affect the total cost of a loan over its full term?
2. What are the advantages and disadvantages of paying points?
3. How can you calculate monthly payments for a fixed-rate loan?
4. What other typical fees are included in closing costs?
5. What is the break-even point when paying for points upfront?

**Tip:** Paying points upfront may save money over the long term, but it's essential to calculate how long you'll stay in the home to see if the savings are worth the initial cost.

Explain what we mean by “points” when talking about closing costs for a home purchase. Then calculate the closing costs for scenario below. A bank offers a $200,000, 30-year, 3.25% fixed rate loan with closing costs of $1000 plus 2 points. What is the total amount of the closing costs?

Learn how to calculate the total closing costs for a $200,000 home loan with a 3.25% fixed rate and additional costs of 2 points and $1000. This problem covers key financial concepts such as loan points, interest rates, and total closing costs. Ideal for students in Grades 10-12.

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