A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
Correct Answer
B) Discount points buy down the interest rate; origination fees compensate the lender for loan processing
Discount points are optional payments made to reduce the interest rate (each point typically reduces the rate by 0.25%), while origination fees are charges for the lender's services in processing and underwriting the loan. Understanding this distinction is crucial for proper disclosure and borrower counseling.
Why This Is the Correct Answer
Discount points are optional payments made to reduce the interest rate (each point typically reduces the rate by 0.25%), while origination fees are charges for the lender's services in processing and underwriting the loan. Understanding this distinction is crucial for proper disclosure and borrower counseling.
More Mortgage Knowledge Questions
A borrower refinances their home with a cash-out refinance loan of $750,000. The original loan balance was $400,000, and they're taking $300,000 in cash. If conforming limits allow $766,550, how is this loan classified?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
Under TRID regulations, discount points must be disclosed on the Loan Estimate in which section?
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