Underwriting
Discount points
Prepaid interest paid at closing to reduce the loan’s interest rate
One point is one percent of the loan amount, not of the purchase price. Paying points lowers the rate and therefore the monthly payment, which is worthwhile only if the borrower holds the loan long enough to recover the up-front cost.
How the exam asks about it
The reliable trap is the base: points are calculated on the loan, and applying them to the price overstates the cost whenever the buyer put money down.
Related terms
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