What is the likely effect of increasing points on a loan without any economic changes?

Increasing points on a loan involves charging additional upfront fees to the borrower, which effectively reduces the interest rate on the loan. Points are essentially prepaid interest; by paying more upfront, the borrower can secure a lower interest rate for the duration of the loan.

The mechanism works on the principle that lenders are willing to offer a discounted rate for borrowers who are willing to pay more upfront. This arrangement benefits both parties; the borrower saves money on interest payments over the life of the loan, and the lender gains upfront income from the points collected.

In scenarios where economic conditions remain unchanged, the relationship between points and interest rates remains constant. Increasing points primarily serves to lower the interest rate charged, allowing borrowers to potentially save significant amounts on their total interest payments, hence making this the most accurate answer in this context.