Finance
A Washington buyer's loan officer discusses 'buying down the rate' by paying points. Generally, one discount point lowers the interest rate by approximately:
A0.25 percentage points✓ Correct
B0.50 percentage points
C0.125 percentage points
D1 full percentage point
Explanation
As a general rule of thumb, paying one discount point (1% of the loan amount) typically reduces the interest rate by approximately 0.25 percentage points, though the actual rate reduction varies by lender, loan type, and market conditions.
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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.
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.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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