What Are Mortgage Points?
There are two different types of points when you apply for a mortgage Loan - which are optional.
Discount points are prepaid interest on your mortgage loan basically paying finance charges in advance. Discount Points are used to "buy" down your interest rate. These are also known as a "rate buydown." A general rule of thumb is that one full Discount Point will lower your fixed interest rate .250 percent or your adjustable rate .375 percent. ca rtgage Lenders regard this type of points as covering their cost for offering a lower interest rate over the length of the loan. The more points you pay, the lower the interest rate on the loan, and the fewer you pay, the higher the interest rate. Paying discount points is a good idea if you plan to live in the house for a long time.
Lender's charge origination points to offset the costs of making the loan or to boost profits. Most loan officers’ compensation is based on origination points, but they still may be negotiable in whole or in part. Some lenders add origination points into their quoted points while other lenders add an origination point in addition to their quoted points. Where discount points serve the borrower by lowering the interest rate, origination points are gross profit for the lender. These are not tax-deductible.