Finance
Points paid on a mortgage loan are best described as:
AMonthly maintenance fees charged by the lender
BPrepaid interest paid to the lender at closing, where each point equals 1% of the loan amount✓ Correct
CPenalty fees for early payoff of the loan
DProcessing fees charged by the title company
Explanation
Mortgage points (discount points) are prepaid interest paid at closing to reduce the interest rate on the loan. 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.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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