Nina Park is comparing two otherwise similar 30-year fixed loans. One has a 6.50% rate with no points, and the other has a 6.25% rate with 2 points. Nina is fairly sure she will sell the home in about 18 months. Which choice is generally more sensible?
Correct Answer
D) Taking the no-point loan, because she may not keep the loan long enough to recover the upfront points
Discount points increase upfront closing costs in exchange for a lower interest rate. If Nina expects to keep the loan for only a short time, she may sell or refinance before the monthly savings repay the upfront points, so the no-point option is generally more sensible.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
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