What is a discount point primarily used for in mortgage lending?

A discount point is primarily used to decrease the interest rate on the mortgage loan. When a borrower chooses to pay points upfront, they are essentially prepaying interest to lower their monthly mortgage payments and the overall cost of the loan over its lifetime. Each point typically equals 1% of the loan amount, and paying points can be a strategic decision for borrowers who plan to stay in their home for a longer duration, as the reduced interest rate can lead to significant savings over time.

While other options may seem relevant, they do not accurately reflect the primary function of discount points. For instance, paying a mortgage broker for favorable rates is typically associated with origination fees or commission structures, not discount points. Covering part of the closing costs might involve other specific fees that may be applicable at closing but do not align with the purpose of discount points. Additionally, discount points do not provide a safeguard against foreclosure; this would generally be managed through different loan provisions and supporting financial resources rather than through the use of points.