Regarding break-even analysis for paying points, which statement is true?

• A. It compares upfront costs of points with monthly savings to determine when paying points becomes cost-effective.
• B. It predicts future property values.
• C. It determines whether to increase the loan amount.
• D. It assesses credit risk of the borrower.

Answer: (D)

Paying points is about weighing an upfront cost against ongoing savings. In break-even analysis, you compare what you pay now for discount points to how much your monthly mortgage payment decreases because the rate is lower. The goal is to figure out how many months it will take for those monthly savings to cover the initial cost. If you plan to stay in the loan long enough, paying points can be worth it; if not, it may not be cost-effective.

This isn’t about predicting future property values, changing the loan amount, or assessing the borrower’s credit risk. Those factors don’t enter the break-even calculation.