What Are Points in Lending?
A Little Mortgage Quiz Points are: charges paid to obtain a home mortgage gross profit for the originator of the loan up-front mortgage interest fees to reduce the interest rate each equal to 1 percent of the total loan amount loan origination fees charged by a lender to raise the yield on a loan when money is tight, interest rates are high, or there is a legal limit on the interest rate that can be charged on a mortgage come in two varieties all of the above If you answered (8) you are correct Points are all those things and more. They are often used to cover a lender’s overhead—salaries, building leases, employee benefits, and other unexpected expenses. Generally, paying one point should lower the interest rate on a loan ¼ percent, two points ½ percent and so on. A rule of thumb is: a no-point loan will have a higher interest rate than a loan with points. Paying points on your mortgage now means you’ll pay less interest later. Lowering the rate reduces your monthly princi...