What are “Points” and when should I pay them?

Points — or discount points — are essentially one-time, pre-paid interest charges on your loan. The more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4 points, depending on how much they want to lower their rates. Discount points are tax deductible.

Each point is equal to 1 percent of the total loan amount. For example if you had a loan amount of $150,000, 1 point would be equal to $1,500.

In contrast to points, an origination fee is a fee charged by the lender to cover the costs of making the loan. The origination fee is not tax deductible.

How do you decide whether to pay points, and how many? That depends on several factors, such as how much money you have available for a down payment, and how long you plan on staying in your house. Points reduce the interest rate, an advantage if you plan to stay in your home for a while. But if you need the lowest possible closing costs, choose a lowest possible point option on your loan program.

Disclaimer : The information contained in this article has been prepared by an independent third party and is distributed to consumers for education purposes only. The information is not guaranteed to be accurate and does not represent the opinions of 5-Star Loan.

©2018 5-Star Loan


411 E. Huntington Dr. Ste. 209, Arcadia, 91006

This is not an offer for extension of credit or commitment to lend. All loans must satisfy company underwriting guidelines. Not all applicants qualify. Information and pricing are subject to change at any time and without notice. The content in this advertisement is for informational purposes only. Products not available in all areas. 5-Star Loan is an Equal Housing Lender. As prohibited by federal law, we do not engage in business practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age (provided you have the capacity to enter into a binding contract), because all or part of your income may be derived from any public assistance program, or because you have, in good faith, exercised any right under the Consumer Credit Protection Act. The federal agency that administers our compliance with these federal laws is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC, 20580.