If a borrower pays 2 discount points on a mortgage loan, what is a true statement regarding the interest rate?

When a borrower pays discount points on a mortgage loan, it effectively allows them to lower the nominal interest rate on the loan. Discount points are upfront fees paid to the lender at closing in exchange for a lower interest rate over the life of the loan, which results in decreased monthly mortgage payments. Each point typically represents 1% of the loan amount.

The difference between the nominal interest rate and the APR (Annual Percentage Rate) arises because the APR incorporates not just the interest cost but also other fees and costs associated with obtaining the loan, including discount points. When discount points are paid, they reduce the nominal rate because the borrower is prepaying interest to lower future payments.

Thus, if a borrower pays 2 discount points, the nominal rate would decrease due to this upfront payment, making it lower than the APR, which reflects the total cost of financing. Therefore, in this context, it is accurate to state that the nominal rate is indeed lower than the APR when discount points are paid.