What’s A Mortgage “Point?”
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A “point” or “loan discount fee” is equal to 1 percent of the loan amount. For example, if you are borrowing $100,000, you would pay $1,000 per point, or $2,000 for 2 points. This money must be paid or credited at closing.
In general terms, more points mean a lower interest rate, fewer points can mean a higher interest rate. The reason is that points are really a form of prepaid interest — instead of paying over time in the form of a higher rate, consumer can points pay up front. A loan without any points is priced at “par.”
Because rates and point combinations are often hard to compare, borrowers should look at par pricing — the annual percentage rate with 0 points — to get an idea of loan costs.
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