PSI Virginia Real Estate Practice Exam

What do mortgage points represent in a real estate transaction?

1. Property insurance requirements

2. Interest rate reductions through fees

3. Loan-to-value calculations

4. Market value assessments

The correct answer is: Interest rate reductions through fees

Mortgage points represent upfront fees that borrowers can pay to reduce their interest rate on a mortgage. Each point typically equals 1% of the total loan amount, and paying points is a strategy real estate buyers often use to lower their monthly mortgage payments. By paying these fees at closing, borrowers effectively secure a lower interest rate for the life of the loan, making it a cost-saving measure in the long term. In contrast, property insurance requirements pertain to policies borrowers must obtain to protect the property, while loan-to-value calculations are used to assess the risk of a loan in relation to the value of the property. Market value assessments involve determining how much a property is worth, usually done through appraisals, but these aspects do not directly relate to the payment of mortgage points or interest rate adjustments.