Question

In a case where a borrower pays 2 discount points on a mortgage loan, which of the following is true?

Option 1: The interest rate decreases
Option 2: The interest rate increases
Option 3: The total loan amount increases
Option 4: The total loan amount decreases

Answer 1

Paying 2 discount points on a mortgage loan typically leads to a decrease in the interest rate.

Step-by-step explanation:

When a borrower pays discount points on a mortgage loan, it affects the interest rate and/or the total loan amount.

In this case, if the borrower pays 2 discount points, it means they are paying a percentage of the loan amount upfront to the lender. Paying discount points usually results in a lower interest rate, so Option 1: The interest rate decreases is true.