Who benefits from Discount Points?

Discount points are essentially prepaid interest on a mortgage loan that borrowers can choose to pay at closing to secure a lower interest rate on their future mortgage payments. By paying these points upfront, the borrower reduces the interest charged on the loan, which can lead to significant savings over the lifespan of the loan. This is particularly beneficial for borrowers who plan to stay in their homes for an extended period, as the reduced monthly payments and overall interest paid can offset the initial cost of the points.

The other options presented do not align with the purpose of discount points. Lenders do not need to increase loan amounts through discount points; they are primarily a mechanism for borrowers to lower their interest rates. Banks and insurance companies are typically not involved in the process of discount points directly, as their interests lie in different aspects of real estate finance and property transactions. Therefore, the borrower seeking a lower interest rate is the clear beneficiary of discount points.