Final answer:
Mortgage 'points' or discounts are charges paid by the borrower for a reduced interest rate at the time of obtaining a loan. The decision to borrow or lend is influenced by comparing interest rates to inflation rates, with lower mortgage interest rates and higher inflation favoring borrowers. Option b) is correct.
Step-by-step explanation:
Discounts or 'points' on mortgages are usually a charge to the mortgage for obtaining the loan. They are fees paid directly to the lender at closing in exchange for a reduced interest rate. This discount on the mortgage interest rate can save borrowers money over the life of the loan. Choosing when to buy or lend depends on various factors such as the mortgage interest rate and the rate of inflation in different years. For a borrower, it's typically better to take a loan when interest rates are low, and inflation is high because the real cost of borrowing decreases over time. On the other hand, for a bank, it's generally better to lend when interest rates are high and inflation is low, enhancing the real value of the repayments received.