Wisconsin Real Estate Sales Practice Exam

To obtain a loan at a rate lower than the open market, what might a buyer likely purchase?

1. Loan insurance

2. Discount points

3. Equity shares

4. Real estate options

The correct answer is: Discount points

A buyer looking to secure a loan at a rate lower than the prevailing open market rate is likely to purchase discount points. Discount points are essentially upfront fees paid to the lender at the time of closing, which reduce the interest rate on the mortgage. Each point typically costs 1% of the loan amount and can lower the interest rate by a fraction of a percentage point. By using this strategy, borrowers can save a significant amount on their monthly mortgage payments over the life of the loan, making it an attractive option for those who plan to stay in their homes for a long period. The upfront cost may seem substantial, but the long-term savings on interest can outweigh the initial expense, particularly if market rates are high. Thus, purchasing discount points is a common method for buyers to negotiate better financing terms and lower their rates effectively.