Loan Officer Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

Lender credits are designed to assist borrowers by covering a portion of their closing costs in exchange for a higher interest rate on their loan. This effectively reduces the upfront expenses that borrowers would typically face at the closing table. By opting for a higher interest rate, the borrower is essentially choosing to finance part of the closing costs, allowing for a lower out-of-pocket payment.

In contrast, discount points are a way for borrowers to pay a lower interest rate by prepaying some interest upfront. This increases the initial costs instead of lowering them. Loan origination fees are charges imposed by lenders for processing a loan application and are not designed to offset closing costs but rather are an expense the borrower has to pay. Prepaid interest refers to the interest that must be paid in advance for the period between closing and the first payment due date; it does not contribute to lowering closing costs either.

Thus, lender credits effectively match the context of the question by providing a financial mechanism that yields immediate cost savings for borrowers at closing while resulting in a slightly higher ongoing cost in the future.