"Points" in a Mortgage Loan

What are the "points" that are part of a mortgage loan transaction? A "point" is 1% of the size of the loan. Being charged "a point" on a $500,000 loan is a $5,000 charge (1% of $500,000).

Points are a basic part of the fees you will pay for the mortgage. The points are a charge the lender or mortgage broker may choose to charge you. This is in addition to other lender/broker charges that may happen, including administration fees or processing fees.

These lender or broker fees are also only part of the total fees you will end up paying for a mortgage loan. These can include escrow charges, title charges, insurance, prepaid interest, property taxes, and other items.

It is important to understand what a "no points" mortgage is. This means that the points are not charged to you upfront. They are usually included in the loan in the form of a higher interest rate. You can decide on the tradeoff between higher rates and higher fees.

A fair level to pay in "mortgage points" can depend on the type of the loan you have. You may end up paying more points if you have:

bad credit
a difficult loan
haven't shopped around for a mortgage enough

Generally people don't pay more than 2 points upfront on a loan.

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