What are “Points”?
(Part 1 of Lending Language / Mortgage Meaning series)
“Points” in the home mortgage industry refers to an additional lender fee that is charged in exchange for a better rate.? Other common terms for this are “discount points” or “a buy-down fee” but it should distinguish between a permanent buy-down and a temporary buy-down.? This fee is usually an optional closing cost, and it should be disclosed in the origination fee section.
The option to pay “points” means that there is not just one rate available but a range of rates and closing costs to choose from.? A buyer (as they purchase a home), or homeowner (as they refinance), can select a lower rate with higher closing costs or a higher rate with lower closing costs.
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The best Loan Officers help guide their clients to identify the optimal overall value considering both rate and “points” involved.? I often run a “recovery time” or “return on investment” calculation to quantify whether paying points is likely to benefit my clients.
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Contact me with questions about points and to help take advantage of these options on your next home purchase or refinance.