Unlike airline mileage points or credit card shopping points that can be saved up and turned in for something positive, mortgage points cost you. To be exact, a point is equal to one percent (1/100) of your loan amount. If our lender charges us one point on our $180,000.00 mortgage loan, then the charge is $1,800.00. What is the difference between the two types of points?
An origination fee point represents the lender’s charge for processing the loan for you. Origination fees are based upon risk. If you are a good risk, the lender may charge no points. If you are a bad risk to the lender, the lender may charge you three or four points. You can often negotiate origination fees. A discount point refers to the amount charged to you for lowering your interest rate. If the interest rate offered to you by the bank is 7.00% with no points, then you might be able to get a 6.75% interest rate if you pay one point at closing. It’s called buying down the rate. Therefore, in our example, the cost of lowering the interest rate from 7.00% to 6.75% on our $180,000.00 mortgage loan would be $1,800.00. Discount points generally are less negotiable than origination fee points because a discount point is a charge for something concrete, the lowering of the interest rate. The scale for origination fee points is more arbitrary. For proper assistance with credit card legalities, contact your Monroe credit card debt attorney today.