In mortgage lending, discount points are used primarily to do which of the following?
Correct Answer
B) Buy down the interest rate on the loan
Discount points are prepaid interest paid to the lender at closing in exchange for a reduced interest rate on the mortgage loan. Each point equals 1% of the loan amount. Paying points lowers the borrower's monthly payment over the life of the loan. Points are not used to increase the down payment, pay commissions, or fund escrow accounts.
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