What Are Mortgage Points?

Hallway hand-rail
Handrail in the open hallway. Old building in downtown Fort Lauderdale, FL

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:

  1. Discount points.
  2. Origination points.

Discount points:

These are prepaid interest on the mortgage loan. The more points home-buyer pays,  the interest rate is lower on the loan.

Origination points:

The lender charges this fee in order to cover the costs of making the loan.