When homebuyer gets information from a lender about the mortgage cost, it often includes loan rates and points.
A mortgage point is a fee equal to 1 percent of the loan amount. For example, when home loan is $300,000 and it has a fee of two ( 2 ) mortgage points, it is going to be $6,000 fee.
A lender can charge one (1), two (2) or more mortgage points.
Mortgage points are fees paid directly to the lender in order to get a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments.
There are two (2) kinds of mortgage points:
- Discount points.
- Origination points.
These are prepaid interest on the mortgage loan. The more points home-buyer pays, the interest rate is lower on the loan.
The lender charges this fee in order to cover the costs of making the loan.