Finance
Discount points paid at closing are used to:
AIncrease the loan amount
BPermanently or temporarily reduce the interest rate on the mortgage✓ Correct
CCover the lender's underwriting fee
DFund the borrower's escrow account
Explanation
Discount points (prepaid interest) are paid upfront at closing to buy down the interest rate on a mortgage. One 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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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.
Math Concepts
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