In a mortgage transaction, what does the term "points" refer to?

The term "points" in a mortgage transaction refers to fees paid to the lender that are expressed as a percentage of the loan amount. Typically, one point equals one percent of the total loan amount. Borrowers can pay points upfront to reduce the interest rate on the loan, which can lead to lower monthly payments over the life of the mortgage. This concept is commonly utilized as a means for lenders to generate revenue and for borrowers to potentially save on interest costs in the long run.

Other aspects of the options clarify that "points" specifically relate to lender fees rather than any discounts for early repayment, additional monthly payments, or fees associated with real estate agents. Each of those aspects pertains to different parts of the mortgage process or different types of costs incurred, reinforcing the understanding of what points specifically denote in the context of borrowing.