Finance
What is the primary purpose of discount points on an Alabama mortgage loan?
ATo increase the loan amount
BTo buy down the interest rate✓ Correct
CTo cover the down payment
DTo pay the agent's commission
Explanation
Discount points are prepaid interest paid at closing to reduce (buy down) the interest rate on the loan. Each point equals 1% of the loan amount.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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