When providing loans, banks may use points, a term that refers to:

When providing loans, banks may use points, a term that refers to:

• A. The internet rate that the bank charges its best customers
• B. The list of conditions the borrower must satisfy to get the loan
• C. Fees charged at the beginning of a mortgage
• D. The maximum loan amount allowed by the bank

Answer: (C)

Points are upfront fees paid at the closing of a mortgage to the lender in order to lower the interest rate on the loan. That description matches what the term points represents, since these payments are made at the beginning and can reduce your ongoing monthly payments and total interest over time. Thinking through the other options helps: the “internet rate” thing isn’t a standard term for points and doesn’t describe prepaid fees. A list of conditions borrowers must satisfy refers to closing conditions or covenants, not points. The maximum loan amount is the loan limit or cap, not a fee paid at the start.

Points are upfront fees paid at the closing of a mortgage to the lender in order to lower the interest rate on the loan. That description matches what the term points represents, since these payments are made at the beginning and can reduce your ongoing monthly payments and total interest over time.

Thinking through the other options helps: the “internet rate” thing isn’t a standard term for points and doesn’t describe prepaid fees. A list of conditions borrowers must satisfy refers to closing conditions or covenants, not points. The maximum loan amount is the loan limit or cap, not a fee paid at the start.