Florida Real Estate Sales Associate Examination Content OutlineReal Estate Contracts and AgencyEasy
A lender requires a borrower to pay a fee of 1% of the loan amount at closing to increase the lender's yield. This fee is commonly known as a:
- AAppraisal fee
- BPrepayment penalty
- CDiscount point
- DOrigination fee
Show answer & explanationAnswer & explanation
Correct answer: C. Discount point
Discount points are upfront fees paid to the lender at closing to reduce the interest rate on the loan, thereby increasing the lender's overall yield.
Why the other options are wrong
- A. An appraisal fee covers the cost of valuing the property and does not directly increase the lender's yield.
- B. A prepayment penalty is a fee charged if the borrower pays off the loan early, not a fee paid at closing to increase yield.
- D. An origination fee is charged by the lender for processing the loan application, not primarily to increase yield.
Discount Point
An amount equal to 1% of the loan amount, charged by the lender at closing to increase the lender's yield or to reduce the borrower's interest rate.
- 1 point = 1% of loan amount
- Paid at closing
- Used to 'buy down' the interest rate or increase lender's yield
Memory trick: Origination starts it, Discount lowers rate, Appraisal checks value.