Discount points in a mortgage are best described as fees paid to:

Discount points in a mortgage are best described as fees paid to:

• A. Increase the loan amount
• B. Reduce the monthly payment by buying down the rate
• C. Pay off the loan early
• D. Obtain a longer term

Answer: (B)

Discount points are prepaid fees paid at closing to buy down the mortgage’s interest rate, which lowers the monthly payment. By paying points, you trade higher upfront costs for lower ongoing borrowing costs. Whether this makes sense depends on how long you plan to keep the loan—the longer you stay, the more months of lower payments you gain, helping you reach a break-even point where the upfront cost is worth it. This concept fits the description of buying down the rate to reduce the monthly payment. It’s not about increasing the loan amount, paying off the loan early, or extending the term.

Discount points are prepaid fees paid at closing to buy down the mortgage’s interest rate, which lowers the monthly payment. By paying points, you trade higher upfront costs for lower ongoing borrowing costs. Whether this makes sense depends on how long you plan to keep the loan—the longer you stay, the more months of lower payments you gain, helping you reach a break-even point where the upfront cost is worth it. This concept fits the description of buying down the rate to reduce the monthly payment. It’s not about increasing the loan amount, paying off the loan early, or extending the term.