What is the term for a fee charged by lenders, equivalent to 1% of the loan amount?

What is the term for a fee charged by lenders, equivalent to 1% of the loan amount?

• A. Loan Processing Fee
• B. Interest Rate
• C. Point
• D. Origination Fee

Answer: (C)

The term for a fee charged by lenders equivalent to 1% of the loan amount is known as a "Point." In mortgage lending, a point is a form of prepaid interest that can be paid upfront at closing to reduce the overall interest rate on the loan. It allows the borrower to achieve a lower monthly payment for the life of the loan, in exchange for an increase in upfront costs. Using points is a common strategy in mortgage financing, and it directly impacts the cost of borrowing. When points are paid, lenders can offer a reduced interest rate to the borrower. This fee is typically calculated as a percentage of the loan amount, with one point representing 1% of the total loan. For example, on a $200,000 mortgage, one point would equal $2,000. The other choices, while related to mortgage costs, do not specifically refer to the fee structure denoted by 1% of the loan amount. The loan processing fee pertains to administrative costs incurred during the handling of a mortgage application. The interest rate is the cost of borrowing stated as a percentage of the loan, while the origination fee can encompass various administrative fees but is not strictly defined as a set percentage like points.

The term for a fee charged by lenders equivalent to 1% of the loan amount is known as a "Point." In mortgage lending, a point is a form of prepaid interest that can be paid upfront at closing to reduce the overall interest rate on the loan. It allows the borrower to achieve a lower monthly payment for the life of the loan, in exchange for an increase in upfront costs.

Using points is a common strategy in mortgage financing, and it directly impacts the cost of borrowing. When points are paid, lenders can offer a reduced interest rate to the borrower. This fee is typically calculated as a percentage of the loan amount, with one point representing 1% of the total loan. For example, on a $200,000 mortgage, one point would equal $2,000.

The other choices, while related to mortgage costs, do not specifically refer to the fee structure denoted by 1% of the loan amount. The loan processing fee pertains to administrative costs incurred during the handling of a mortgage application. The interest rate is the cost of borrowing stated as a percentage of the loan, while the origination fee can encompass various administrative fees but is not strictly defined as a set percentage like points.