Finance
What is the purpose of a loan discount point on a mortgage?
ATo cover the lender's origination costs
BTo prepay interest and lower the mortgage interest rate✓ Correct
CTo fund the escrow account
DTo pay the title insurance premium
Explanation
Each discount point equals 1% of the loan amount and is paid upfront to reduce (buy down) the mortgage interest rate.
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Key Terms to Know
Title Insurance
Insurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
Discount PointsPrepaid 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.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
Math Concepts
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