To increase the effective yield on a $250,000 loan by 1/4% with one discount point equating to an increase in APR of 1/8%, how much would the lender collect in origination fees?

To determine how much the lender would collect in origination fees, it’s important to understand how discount points work in relation to the loan amount. A discount point typically equals 1% of the total loan amount, and this upfront fee is paid to the lender to lower the interest rate on the loan.

In this scenario, one discount point on a $250,000 loan would amount to $2,500 (which is 1% of $250,000). The question states that to increase the effective yield by 1/4% (or 0.25%) through the use of one discount point, the APR increases by 1/8% (or 0.125%). This suggests a direct relationship between the yield adjustment and the incurred fees.

Since the question is essentially asking for the total amount collected in origination fees necessary to achieve this increase in yield, if one point equates to an increase that satisfies the need, you would have to calculate it as a multiple of points used.

If the lender needs to increase the APR through additional points, the possible minimum required would relate directly to the context of the increase in yield you desire. In other words, to achieve a $250,000 loan adjustment where the increase corresponds