Loan Officer Practice Exam 2026 – 400 Free Practice Questions to Pass the Exam

The funds a lender provides to cover closing costs, where the borrower agrees to a higher interest rate, are referred to as lender credit. This arrangement allows borrowers to reduce their out-of-pocket closing expenses by accepting a slightly higher interest rate on their mortgage. This can be a strategic move for those who prefer to keep their initial costs lower, even though it may result in higher overall costs over the life of the loan due to increased interest payments.

In this context, discount points refer to fees paid to the lender to lower the interest rate on the loan, which is a different transaction where costs are upfront rather than covered by lender credits. The par rate typically refers to the market interest rate at which a borrower can obtain a loan without paying points or receiving a credit—again, distinct from the concept of lender credits. A kickback bonus usually pertains to unethical or illegal payments made to incentivize specific lending practices, which does not apply here. Therefore, lender credit is the most accurate term for the funds covering closing costs when the borrower accepts a higher interest rate.