California Real Estate Practice Exam

What is the effect of a discount point on the effective yield a lender gets from a mortgage loan?

1. It decreases it

2. It raises it

3. It has no effect

4. It varies with the market

The correct answer is: It raises it

A discount point is an amount of money paid to the lender at closing in exchange for a lower interest rate on the mortgage loan. This option raises the effective yield for the lender because they will receive more money over the life of the loan with a lower interest rate. Option A is incorrect because a discount point does not decrease the effective yield for the lender. Option C is incorrect because a discount point does have an effect on the lender's yield. Option D is incorrect because while the cost of a discount point may vary with the market, its effect on the lender's yield remains the same.