Among the many terms you hear thrown around during the mortgage process, just one is “mortgage points.” Mortgage points can be used to lower the interest rate you’ll pay on your mortgage. They are effectively a discount you get over the life of the loan, but you’ll need to pay for them upfront during closing.
Mortgage points, or discount points, are fees that you pay to the lender upfront for discounted interest rates. Generally speaking, one-point costs about 1% of your mortgage loan amount. For example: if you must pay one point on a $200,000 mortgage, you will owe $2,000.
You want to pay attention to mortgage points because over time, they can save you a bunch of money on interest payments! Mortgage points – origination or discount – can be paid by any one of four different parties or a combination of two or more. Possibilities include you, as the borrower, the property seller, the lender, or by a gift from a family member.
Unfortunately, there’s no easy answer when it comes to the question of discount points. They’ll work for some, but not for others. It will all depend on the specifics of the loan you’re taking, and your personal circumstances.