What is the purpose of paying discount points on a mortgage loan?
Correct Answer
B) Buy down the interest rate on the loan
Discount points are prepaid interest paid at closing to reduce the loan's interest rate. Each point equals 1% of the loan amount, and paying points lowers the borrower's monthly payment over the life of the loan.
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Related Topics & Key Terms
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Related Concepts
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
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.
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