What is a discount point?
A “Discount Point” is a financial expression referring to a percentage of the loan amount. For example, “1 point” means a charge equal to 1.000% of the loan amount. Traditionally, points may be charged by a mortgage lender to cover the cost of buying a lower rate, but are not required in all cases. This amount would be paid at the close of escrow as part of the “closing costs” and may be paid by the buyer, the seller, or a thrid party.
When inquiring about rates, be sure to check if the quoted interest rate reflects payment of points. Many loan programs allow you to receive a discounted interest rate by paying a fee in points and/or origination fees. One point equals 1% of the loan amount, and the more points you wish to pay, the more you can discount your rate. Paying points is not a requirement; it’s just an option lenders offer to accommodate the immediate or long-term monthly payment concerns of home mortgage customers.