Arizona Real Estate License Practice Exam 2026 – All-in-One Resource to Pass with Confidence!

In the context of real estate financing, discount points are fees paid at closing to lower the interest rate on a mortgage. Each discount point typically represents 1% of the loan amount and generally reduces the interest rate by about 0.25% to 0.5%.

If John had not paid the 2 discount points, it implies he opted for a higher interest rate instead of the reduced rate that those points would have provided. Therefore, understanding how discount points work is crucial to determining what his interest rate would be without those payments.

Given that the answer identifies an interest rate of 10 3/4%, this suggests that the base rate without any discount points would have been higher than this reduced rate. When points are paid, they effectively lower the interest rate John would pay over the life of the mortgage. Thus, not paying those points would revert to a higher interest rate, which aligns with the concept that discount points are intended to decrease interest rates.

To summarize, John's interest rate would have been 10 3/4% if he hadn't opted to pay the 2 discount points, making this the correct choice based on how discount points operate in mortgage transactions.