Question

What is the benefit of paying discount points as part of the closing costs?
a.
Discount points give the buyer a discount on the mortgage.
b.
Typically points lower the interest rate on the mortgage. The more points that a buyer pays up front, the lower the interest rate.
c.
Points lower the overall cost of the home. The more points that a buyer pays up front, the lower the total cost at closing.
d.
Discount points give you a discount from the title company where you go to sign the loan papers.

Answer 1

Correct answer: b.

Paying discount points is prepaid interest that lowers the mortgage interest rate (typically one point = 1% of the loan amount). That reduces the monthly payment and total interest over the loan term. The other choices are incorrect: points don’t give a purchase-price discount, don’t reduce closing costs, and aren’t a discount from the title company.