A discount point is BEST described as a charge the borrower pays to:

A discount point is BEST described as a charge the borrower pays to:

• A. The seller as part of the closing costs of a loan
• B. A lender to ensure against foreclosure
• C. A lender to decrease the interest rate on the mortgage loan
• D. A mortgage broker at the time of application to obtain a favorable rate

Answer: (C)

Discount points are prepaid interest paid to the lender at closing to buy down the mortgage interest rate. By paying points, you increase upfront costs but reduce the monthly payment and the total interest paid over the life of the loan. Typically, one point costs 1% of the loan amount and can lower the rate by a set number of basis points, though exact amounts vary. The purpose is specifically to obtain a lower interest rate from the lender, which is why this option is the best description. It is not paid to the seller as part of closing costs, not a premium to insure against foreclosure, and not a fee to a mortgage broker for a favorable rate.

Discount points are prepaid interest paid to the lender at closing to buy down the mortgage interest rate. By paying points, you increase upfront costs but reduce the monthly payment and the total interest paid over the life of the loan. Typically, one point costs 1% of the loan amount and can lower the rate by a set number of basis points, though exact amounts vary. The purpose is specifically to obtain a lower interest rate from the lender, which is why this option is the best description. It is not paid to the seller as part of closing costs, not a premium to insure against foreclosure, and not a fee to a mortgage broker for a favorable rate.