What is the fee charged as a percentage of the loan amount to reduce the mortgage interest rate?

What is the fee charged as a percentage of the loan amount to reduce the mortgage interest rate?

• A. Origination Fee
• B. Discount Points
• C. Underwriting Fee
• D. Closing Costs

Answer: (B)

The fee charged as a percentage of the loan amount to reduce the mortgage interest rate is known as discount points. When a borrower pays for discount points, they are essentially prepaying some interest in exchange for a lower interest rate over the life of the loan. One discount point typically equates to 1% of the loan amount, and each point usually results in a slight decrease in the mortgage interest rate. This strategy can be beneficial for borrowers who plan to stay in their homes for a long time, as the upfront cost can lead to long-term savings on interest payments. In contrast, an origination fee relates to the cost of processing the loan and does not specifically result in a lower interest rate. The underwriting fee covers the cost of evaluating the borrower's application and assessing the risk of lending, while closing costs refer to various fees and charges incurred during the finalization of the mortgage transaction, including title insurance, appraisal fees, and more. None of these options directly involve reducing the mortgage interest rate in the way that discount points do.

The fee charged as a percentage of the loan amount to reduce the mortgage interest rate is known as discount points. When a borrower pays for discount points, they are essentially prepaying some interest in exchange for a lower interest rate over the life of the loan. One discount point typically equates to 1% of the loan amount, and each point usually results in a slight decrease in the mortgage interest rate. This strategy can be beneficial for borrowers who plan to stay in their homes for a long time, as the upfront cost can lead to long-term savings on interest payments.

In contrast, an origination fee relates to the cost of processing the loan and does not specifically result in a lower interest rate. The underwriting fee covers the cost of evaluating the borrower's application and assessing the risk of lending, while closing costs refer to various fees and charges incurred during the finalization of the mortgage transaction, including title insurance, appraisal fees, and more. None of these options directly involve reducing the mortgage interest rate in the way that discount points do.