Finance
A West Virginia homebuyer who pays 'discount points' at closing is paying:
AA penalty for making a small down payment
BPrepaid interest to buy down the interest rate on the mortgage✓ Correct
CFees for the discount lender's mortgage processing
DThe difference between the list price and the sale price
Explanation
Discount points are prepaid interest. Each 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.
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.
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.
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.
Math Concepts
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