Finance
Which of the following best describes 'points' in a mortgage transaction?
AThe credit score required to qualify for the loan
BPrepaid interest paid at closing to reduce the loan's interest rate, with one point equaling 1% of the loan amount✓ Correct
CThe lender's profit margin on each loan
DThe origination fee charged for processing the application
Explanation
Mortgage points (also called discount points) are a form of prepaid interest. Each point equals 1% of the loan amount and typically reduces the interest rate by 0.125–0.25% per point. Paying points makes sense for borrowers who plan to stay in the home long enough to recoup the upfront cost.
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