Which statement is true about loan points?

Which statement is true about loan points?

• A. Always paid by the borrower
• B. Excludes points paid by sellers from finance charges
• C. Allows negotiation between borrower and lender
• D. Both B and C are true

Answer: (D)

Loan points, also known as discount points, are upfront fees paid to the lender at closing in order to reduce the interest rate on a mortgage. The statement that both B and C are true highlights important aspects of how points function in the context of loan agreements. Points paid by sellers, which are sometimes part of a purchase agreement, are indeed excluded from being classified as finance charges. This means that if a seller agrees to pay points to help facilitate the loan for the buyer, these points do not increase the buyer's effective cost of borrowing under the Truth in Lending Act. This exclusion is significant because it impacts the calculation of the APR (Annual Percentage Rate) and the overall cost of the loan to the borrower. Additionally, the fact that there is room for negotiation between the borrower and the lender regarding loan points is crucial. The terms associated with points, including how many points are required and their cost, are generally negotiable. Borrowers often have the ability to discuss and adjust the points they are willing to pay, which can affect their overall borrowing costs and interest rates. Together, these two statements reflect the flexibility and regulatory nuances in how loan points are managed, making the choice encompassing both B and C the correct answer.

Loan points, also known as discount points, are upfront fees paid to the lender at closing in order to reduce the interest rate on a mortgage. The statement that both B and C are true highlights important aspects of how points function in the context of loan agreements.

Points paid by sellers, which are sometimes part of a purchase agreement, are indeed excluded from being classified as finance charges. This means that if a seller agrees to pay points to help facilitate the loan for the buyer, these points do not increase the buyer's effective cost of borrowing under the Truth in Lending Act. This exclusion is significant because it impacts the calculation of the APR (Annual Percentage Rate) and the overall cost of the loan to the borrower.

Additionally, the fact that there is room for negotiation between the borrower and the lender regarding loan points is crucial. The terms associated with points, including how many points are required and their cost, are generally negotiable. Borrowers often have the ability to discuss and adjust the points they are willing to pay, which can affect their overall borrowing costs and interest rates.

Together, these two statements reflect the flexibility and regulatory nuances in how loan points are managed, making the choice encompassing both B and C the correct answer.