Final answer:
Making extra mortgage payments reduces the length of the loan and decreases the total amount of interest paid over time. It also does not change the points charged or decrease net worth but instead can increase it by saving on future interest payments. The correct option is b.
Step-by-step explanation:
Making extra mortgage payments primarily reduces the length of the loan. When you pay more than the minimum on your mortgage, it decreases the principal balance more quickly, which in turn reduces the total amount of interest paid over the life of the loan.
This is because the interest on a mortgage is calculated on the remaining balance, so a lower balance means less interest accrued. Making extra payments does not increase points charged or decrease net worth.
In fact, paying down debt can be seen as a form of saving, as it reduces future interest costs, effectively increasing your net worth over time. Additionally, if a borrower has been late on loan payments, it impacts the lender's confidence, potentially leading to higher interest rates.
In a broader financial context, changes in overall market interest rates affect the valuation of loans, where loans are more attractive when they are at lower interest rates compared to the market. Conversely, if market rates fall, existing loans at higher rates become more valuable. The correct option is b.