Which statement is true about points that are paid before or at loan closing?

The statement that points must be deducted from the loan principal amount to calculate the amount financed is correct because points, also known as discount points, are a form of prepaid interest. When a borrower pays points upfront, they are essentially paying interest in advance, which reduces the effective interest rate on the loan. According to Regulation Z, when calculating the amount financed, any points paid must be subtracted from the loan amount because they represent upfront costs that the borrower will incur, not funds that will be available for borrowing.

By deducting the points from the loan principal, the calculation accurately reflects the total amount the borrower will receive after fees are accounted for. This practice is crucial for ensuring transparency in the terms of the loan and for providing the borrower with a clear understanding of the costs associated with borrowing.

Understanding this aspect of Regulation Z is essential for compliance and proper disclosure in lending practices. While the other statements may contain certain truths in different contexts, they do not accurately reflect the specific requirements regarding how points are treated in the calculation of the amount financed under Truth in Lending rules.