A borrower faces a rate/cost tradeoff. At par (zero-cost), the rate is 6.5%. Option A: buy 1 discount point for a 0.25% rate reduction. Option B: accept 6.75% to receive a $2,500 lender credit. Which statement is true?

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Option A costs money upfront to lower the rate; Option B avoids upfront costs by accepting a higher rate The tradeoff: discount points (""""Option A costs money upfront to lower the rate; Opti..." means higher upfront cost but lower monthly..." costs money upfront to lower the rate; Opti..." means higher upfront cost but lower monthly...") require CASH at closing to reduce the rate — lower monthly payment but higher upfront cost. Lender credit ("""Option A costs money upfront to lower the rate; Opti..." means higher upfront cost but lower monthly..." costs money upfront to lower the rate; Opti...") covers closing costs by accepting a higher rate — lower upfront cost but HIGHER monthly payment. The "all-in" cost depends on how long the borrower keeps the loan (breakeven analysis). Short-term borrowers benefit from lender credits; long-term borrowers benefit from points.

A borrower faces a rate/cost tradeoff. At par (zero-cost), the rate is 6.5%. Option A: buy 1 discount point for a 0.25% rate reduction. Option B: accept 6.75% to receive a $2,500 lender credit. Which statement is true?

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