When a buyer 'buys down' a loan, what action do they take?

When a buyer 'buys down' a loan, what action do they take?

• A. Increase their monthly payments
• B. Pay upfront to lower interest rate
• C. Negotiate loan terms
• D. Skip mortgage payments

Answer: (B)

When a buyer "buys down" a loan, they make an upfront payment to lower the interest rate on their mortgage. This process generally involves paying points, which are fees that a borrower can pay to reduce the interest rate charged on their loan. Each point typically equal to 1% of the loan amount can lower the interest rate by a certain percentage, resulting in lower monthly payments over the life of the loan. This action allows borrower's to secure a more favorable loan condition, as a lower interest rate can significantly reduce overall borrowing costs. It is a common strategy employed by buyers who want to manage their monthly budget more effectively or prefer to save money on their total interest payments throughout the loan's duration. While other choices might relate to various aspects of mortgage management or negotiation, they do not describe the specific action of buying down a loan, which focuses on the direct financial investment in interest reduction.

When a buyer "buys down" a loan, they make an upfront payment to lower the interest rate on their mortgage. This process generally involves paying points, which are fees that a borrower can pay to reduce the interest rate charged on their loan. Each point typically equal to 1% of the loan amount can lower the interest rate by a certain percentage, resulting in lower monthly payments over the life of the loan.

This action allows borrower's to secure a more favorable loan condition, as a lower interest rate can significantly reduce overall borrowing costs. It is a common strategy employed by buyers who want to manage their monthly budget more effectively or prefer to save money on their total interest payments throughout the loan's duration.

While other choices might relate to various aspects of mortgage management or negotiation, they do not describe the specific action of buying down a loan, which focuses on the direct financial investment in interest reduction.