Which of the following refers to paying points to permanently lower the interest rate on a loan?

Which of the following refers to paying points to permanently lower the interest rate on a loan?

• A. Temporary Buy-Down
• B. Permanent Buy-Down
• C. Reduced Rate Agreement
• D. Rate Lock

Answer: (B)

The correct answer is the Permanent Buy-Down, which involves paying points upfront in order to secure a lower interest rate throughout the duration of the loan. This process allows borrowers to reduce their monthly mortgage payments by offsetting the cost of interest over time. Each point typically corresponds to 1% of the loan amount and lowers the interest rate by a set percentage, providing long-term savings for the borrower. In contrast, a temporary buy-down involves lowering the interest rate for an initial period before reverting to the original rate, making it less straightforward for long-term financial planning. A reduced rate agreement is not a formally recognized term in mortgage lending and does not specifically refer to buying down points to lower the interest rate. Rate lock refers to locking in an interest rate for a specified time frame during the home buying or refinancing process but does not involve paying points to reduce the rate.

The correct answer is the Permanent Buy-Down, which involves paying points upfront in order to secure a lower interest rate throughout the duration of the loan. This process allows borrowers to reduce their monthly mortgage payments by offsetting the cost of interest over time. Each point typically corresponds to 1% of the loan amount and lowers the interest rate by a set percentage, providing long-term savings for the borrower.

In contrast, a temporary buy-down involves lowering the interest rate for an initial period before reverting to the original rate, making it less straightforward for long-term financial planning. A reduced rate agreement is not a formally recognized term in mortgage lending and does not specifically refer to buying down points to lower the interest rate. Rate lock refers to locking in an interest rate for a specified time frame during the home buying or refinancing process but does not involve paying points to reduce the rate.