What is a Point?
A point is a fee that is one percent of the loan amount. Points may be charged as an origination fee, which is one of the ways the mortgage company gets paid for their services or as a discount point, which is paid to reduce the interest rate on a loan.
For a loan of $200,000 a point will be $2,000.
Points are negotiable. If a seller, offers closing cost help of $10,000 on a $200,000
Loan and the buyer only needs $8,000 to close, it would be wise for the buyer to use the additional $2,000 to pay a discount point to reduce the interest rate on the loan.
When you shop for a loan, evaluate the combination of interest rates and points for each mortgage. Remember, points represent a one-time charge, whereas interest is paid for the entire life of the loan. When possible, you can pay a little more in points and reduce interest payment that you could be making for up to 30 or 40 years.
Frank,
Interesting way to explain this......thanks, like the graphics.