Finance
A NJ homebuyer who pays discount points at closing in exchange for a lower interest rate is making an economic decision to:
AIncrease their monthly payment
BPay upfront to reduce the long-term interest cost, which is beneficial if they hold the loan long enough to recoup the upfront cost (breakeven analysis)✓ Correct
CIncrease the loan balance
DAvoid title insurance
Explanation
Paying discount points reduces the interest rate, lowering monthly payments. The buyer must calculate how long it takes to recover the upfront point cost through savings (the breakeven point) to determine if buying points makes economic sense for their situation.
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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.
Title InsuranceInsurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
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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