Which statement about points is correct?

Which statement about points is correct?

• A. Origination points reduce the interest rate.
• B. Discount points are taxes paid at closing.
• C. Both discount and origination points are reduced from the loan amount.
• D. Discount points reduce the interest rate; origination points are lender fees for processing the loan; both paid at closing.

Answer: (D)

Points on a mortgage are upfront costs tied to the loan’s rate and its processing. Discount points are prepaid interest that lower the borrower’s interest rate, while origination points are lender fees charged to obtain and process the loan. Both types are paid at closing, though they can sometimes be financed into the loan. Therefore, the statement that correctly describes them is that discount points reduce the interest rate; origination points are lender fees for processing the loan; both paid at closing. The other ideas are inaccurate: origination points don’t lower the rate, discount points aren’t taxes, and points aren’t simply subtracted from the loan amount.

Points on a mortgage are upfront costs tied to the loan’s rate and its processing. Discount points are prepaid interest that lower the borrower’s interest rate, while origination points are lender fees charged to obtain and process the loan. Both types are paid at closing, though they can sometimes be financed into the loan. Therefore, the statement that correctly describes them is that discount points reduce the interest rate; origination points are lender fees for processing the loan; both paid at closing. The other ideas are inaccurate: origination points don’t lower the rate, discount points aren’t taxes, and points aren’t simply subtracted from the loan amount.