Finance
In a real estate transaction, 'points' may be used to:
APay the real estate commission
BPay discount points to reduce the interest rate or origination points as a fee for making the loan✓ Correct
CReduce the down payment requirement
DExtend the loan term
Explanation
Points serve two purposes: origination points are lender fees for processing the loan, and discount points are prepaid interest that reduce the mortgage interest rate. Each point = 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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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.
Math Concepts
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