What are points in mortgage lending?

Points in mortgage lending refer to fees that borrowers can pay upfront at closing to reduce their mortgage interest rate. This practice is known as "buying down the rate" and can lead to substantial savings over the life of the loan if the borrower plans to keep the mortgage for an extended period.

When a borrower pays points, each point typically equals one percent of the total loan amount. For example, if the loan amount is $200,000, one point would cost $2,000. This upfront cost can make monthly payments more manageable since a lower interest rate means less interest accrued over time.

The other choices provided don't accurately describe what points are in the context of mortgage lending. The fees paid to the lender for processing the loan relate more to origination fees and service costs, while additional charges for late payments are penalties for not adhering to the payment schedule. Lastly, down payment requirements pertain to the initial amount a borrower needs to afford the house and are independent of points. Therefore, the definition associated with option C correctly captures the role of points in loan transactions.