What effect do increasing points paid for a loan typically have on the interest rate?

When points are paid upfront for a loan, they typically serve as a form of prepaid interest that reduces the overall interest rate of the loan. Paying points essentially allows the borrower to lower their monthly mortgage payments, as the lender compensates for the upfront cost by providing a reduced interest rate. This is beneficial for borrowers who plan to stay in their home for a long period, as it can lead to significant savings over the life of the loan.

In the context of the other options, it is important to note that paying points does not eliminate the interest rate or have no effect on it. Additionally, paying points would not lead to an increase in the interest rate; rather, it is a common practice used to secure better loan terms for the borrower.