Real Estate Finance
Prepaid interest charges paid at closing to reduce the loan's interest rate.
One discount point equals 1% of the LOAN amount (not the purchase price). Borrowers pay points at closing to 'buy down' the interest rate. Each point typically reduces the rate by approximately 0.125% to 0.25%, varying by lender and market conditions. Points are tax-deductible in the year paid for the borrower's primary residence. Whether paying points makes economic sense depends on how long the borrower expects to keep the loan: longer holds favor paying points; shorter holds do not.
Exam Tip
1 point = 1% of the LOAN amount (NOT the sale price). Reduces rate ~0.125–0.25% per point. Tax-deductible in the year paid for primary residence.
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