Aceable Level 8 Practice Exam

In mortgage financing, what are points?

Monthly Payments Applied to Principal Taxes Paid at Closing Insurance Premiums Upfront Fees Paid to Lower the Interest Rate

Correct Answer:

Upfront Fees Paid to Lower the Interest Rate

Explanation:

Points are upfront fees paid at closing to reduce the mortgage interest rate. Each point typically costs 1% of the loan amount and buys down the rate, which lowers your monthly payment and the total interest paid over the life of the loan. Paying points makes sense if you plan to keep the loan long enough to recoup the upfront cost through savings in monthly payments. This concept is distinct from taxes and insurance, which are separate items paid with the monthly escrow or at closing.

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