Which term describes a lump-sum payment made at closing to lower the interest rate?

The correct term for a lump-sum payment made at closing to lower the interest rate is referred to as "points." When a borrower pays points, they are essentially paying additional upfront interest in exchange for a reduced interest rate on their mortgage. This is commonly seen as a way to decrease monthly mortgage payments over the life of the loan.

Points are typically expressed as a percentage of the total loan amount, where one point equals 1% of the loan value. For example, if you have a $200,000 mortgage and you pay two points, you would pay $4,000 at closing to obtain a lower interest rate.

Understanding the role of points is crucial in mortgage transactions because they directly influence the cost of borrowing and the overall affordability of the loan. When evaluating mortgage options, borrowers should consider whether paying points aligns with their financial goals and how long they plan to stay in the home, as it can affect the break-even point of their investment.