Lenders are offering different financing options on 30-year FRMs.One lender offers a contract rate of 6% with one discount point while another lender offers a 6% contract rate with two discount points.Since both loans are discounted,which is the better option for the borrower based on the APR? Other factors are held constant and the borrower wants to minimize his/her borrowing cost.

Question

Quizplus · Accepted Answer

To determine which option is better, we need to compare the APRs. The APR takes into account not only the contract rate but also the discount points and other loan fees. Assuming other factors are held constant, the loan with one discount point will likely have a lower APR than the loan with two discount points. Therefore, the borrower should choose the option with one discount point, which is 6% with one point.

Lenders Are Offering Different Financing Options on 30-Year FRMs