Points (Discount Points)
Optional upfront payment to the lender to reduce your interest rate. One point equals 1% of loan amount.
Discount points let you "buy down" your rate by paying a lump sum upfront. Each point typically buys down rate by 0.125-0.250%. Points are tax-deductible in the year paid (subject to limits). Math: only worth it if you keep the loan long enough for monthly savings to recoup the upfront cost ("break-even period"). Calculate carefully before paying points.
Related terms
Origination Fee
Lender's fee for processing the loan, typically expressed as a percentage of loan amount (1 point = 1%).
APR (Annual Percentage Rate)
Total cost of a mortgage expressed as a yearly rate, including interest plus most loan fees and mortgage insurance.
Note Rate
The actual interest rate written on your mortgage promissory note — the rate used to calculate your monthly payment.
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