3.7- What are Bona fide discount points and its application during a mortgage loan origination?
A Discount point is a fee expressed as a percentage of the loan amount to be paid by the borrower to the lender at the time of loan origination in return for a lower interest rate, Discount points can benefit borrowers by reducing their monthly mortgage payment. A Bona fide discount point means that the borrower must receive a minimum interest rate reduction in return for paying the point.
A Bona fide Discount point must meet the definition and requirements as set forth by the CFPB in Reg Z 1062.32 and 1062.43
Regulation Z is the Federal reserve board regulation that implements Truth in Lending Act of 1968. TILA is a Legislation designed to protect consumers against misleading lending practices.