Point
Definition and meaning of Point in real estate.
A point is a fee paid directly to a mortgage lender at closing in exchange for a reduced interest rate. One point is equal to one percent of the total loan amount.
In more detail
Also known as discount points, this payment represents prepaid interest. Lenders offer various rate and point combinations, allowing buyers to customize their monthly payments. Paying points decreases the interest rate over the life of the loan, which benefits borrowers who plan to keep the mortgage for a long time. However, buyers must calculate their break-even point to ensure the upfront cost is worth the long-term savings.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Discount points or loan origination points |
| Who pays | The buyer or the seller via concessions |
| Typical cost | One percent of the mortgage loan amount |
A home buyer taking out a mortgage pays points at closing, which reduces their interest rate and lowers their monthly payment.
Frequently asked questions
What is the difference between discount points and origination points?
Discount points are optional fees paid to lower your interest rate, whereas origination points are mandatory fees charged by the lender to cover processing costs.
Are mortgage points tax-deductible?
Yes, in many cases, discount points paid on a primary home purchase are tax-deductible, but borrowers should consult a tax professional to verify their specific situation.