What is the primary purpose of discount points in a mortgage?

The primary purpose of discount points in a mortgage is to lower the interest rate charged on the loan. When a borrower pays discount points upfront, they are essentially making a financial trade-off: they pay a percentage of the loan amount to reduce the ongoing interest cost on that loan. Each point typically costs 1% of the loan amount and can lower the interest rate by a predefined amount, often around 0.25%.

By paying discount points, borrowers can benefit from smaller monthly payments, making home ownership more affordable over time. This is especially beneficial for those who plan to stay in the home for a longer duration, as the upfront cost of the points can be recouped through the savings on interest over the life of the loan. Thus, the correct answer highlights the role of discount points as a tool for managing interest expenses effectively.