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 loan. Each point equals 1% of the loan amount. Borrowers who plan to stay in the home long-term may benefit from paying points upfront to lower their monthly payments over the life of the loan.
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Related Topics & Key Terms
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Related Concepts
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
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