Bob wants to reduce his borrowing from $60,000 with a market interest rate of 10 1/4% down to 9 1/2%. How many points will he have to pay?

To determine the number of points Bob needs to pay to reduce his interest rate from 10 1/4% to 9 1/2%, we first need to establish the significance of points in real estate financing. Points are typically used as a way to buy down the interest rate on a loan. One point equates to 1% of the loan amount and reduces the interest rate by a certain percentage, which can vary depending on market conditions.

In this case, Bob is looking to decrease his borrowing cost significantly, and the difference between the two interest rates is approximately 3/4 of a percentage point (0.75%). It's common in the lending industry to pay points to lower the interest rate, especially when the difference is substantial, as in Bob's scenario.

By paying points, Bob effectively buys down his interest rate, allowing for significant long-term savings on his mortgage payments. The calculation for how many points are necessary can vary by lender, but it is often estimated that each point paid can lower the interest rate by approximately 1/8% to 1/4%.

Given the scenario where Bob is reducing his rate by approximately 3/4%, he might find that paying a larger number of points, such as