The Real Estate Encyclopedia
Points: What? When? How Much?
Category - Home Buying Questions - General Home Buying FAQ's

Points are a type of pre-paid interest issued by the lender as an alternative to charging higher interest rates on the loan. One point is equal to one percent of the loan principal (the actual amount of your loan). If you opt to finance your home at a lower interest rate, the discount points are often paid at the time of closing. Consumers looking to live in their home for 10 to 20 years or longer may find that having more points with a lower interest rate will pay off over time whereas consumers who only plan to live in their home for 5 to 7 years may find a loan with a higher interest rate and fewer points the better option.  On a $100,000 loan, 1 point is $1,000 and 10 points is a charge of $10,000.

The amount of points charged is not usually set by law. You may wish to shop for a mortgage broker or lender who charges fewer points. You may be able to negotiate for lower points. Asking about points before you choose a mortgage broker or lender may save you money. You should be aware, however, that a loan portrayed as a "no point" or "zero point" loan may have a higher interest rate than a loan for which points must be paid. Therefore, it is important to compare the points, costs and interest rates in order to decide which loan is best for you. And remember, there is no such thing as a "no cost loan." Points can also be paid by the borrower to obtain a lower interest rate loan. These are referred to as "Discount Points" and are different than the points charged by the broker or lender as origination fees.

Ask your mortgage broker for a Good Faith Estimate showing all points and fees.

Mortgage Questions - Mortgage Loans FAQ's
Home Buying Questions - General Home Buying FAQ's
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