Points are fees paid to lenders. Each point is equal to 1% of the loan amount. On a $100,000 loan, 1 point is $1000. Points may be further classified into origination points or discount points. Origination points are fees paid to a lender for processing a loan application. The origination fee is stated in the form of points. Discount points are fees paid to lenders and each point is equal to 1% of the loan amount.
The loan discount points may vary from 1 to 6% or more of the loan amount and, therefore, can account for a large portion of the closing costs. If you're confused, don't feel alone. Understanding points can be confusing. For additional information please consult a broker/lender.
This calculator will compare two mortgages: one with a lower interest rate and one with fewer points.
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