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The Curious Bag
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Mortgage points represent charges assessed at the closing of the mortgage that are charged by the lender. You must pay origination points while you can choose how many discount points to pay.
Cost
One point costs 1 percent of the value of the loan. For example, if you are borrowing $300,000, each point would cost $3,000.
Types
Mortgage points are charged for costs associated with generating the loan, called origination points and as a form of prepaid interest, known as discount points.
Effects
Each discount point paid will reduce the interest rate on your mortgage by about 0.25 percent, which may fluctuate with market conditions.
Should You Pay for Points?
You choose how many discount points to pay to lower the interest rate. If you are planning to stay in your home without refinancing for a decade or more, paying for points are usually in your best interest.
Tax Deductions
You can deduct the points that you pay on your mortgage during the year that you take out the loan as an itemized deduction.
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