In mortgage lending, discount points are used primarily to do which of the following?
Correct Answer
B) Buy down the interest rate by prepaying interest at closing
Discount points are prepaid interest paid at closing to reduce the loan's interest rate. Each point equals 1% of the loan amount. Paying points upfront lowers the monthly payment and can save money over the life of the loan if the borrower keeps the loan long enough to recoup the cost.
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In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
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