A borrower is purchasing a $400,000 home with 10% down. The lender charges 1.5 discount points. How much do the points cost in dollars?

Correct answer: $5,400

Down payment = $400,000 x 10% = $40,000. Loan amount = $400,000 - $40,000 = $360,000. Points are calculated on the LOAN amount, not the purchase price. 1.5 points = 1.5% x $360,000 = $5,400.