What are discount points? - Discount points are fees paid to the lender at closing. Most times they are paid for a lower interest rate. One point is equal to 1% of the total loan amount. As an example, a $150,000 loan, one point would equal $1500. Most lenders charge between 1 and 2 points for a lower rate.
Discount Points are also referred to as "Prepaid Interest". You are paying your interest upfront at closing, rather then over the lifetime of the loan. If you are planning in staying in your home for a long period of time, then paying discount points up front may benefit you in the long run. Consult your mortgage professional to see if paying discount points are right for you.
Many homebuyers will ask the seller to pay a discount point for them. That is a great way to have the seller assist you in getting a below market interest rate on your purchase.
When considering how many discount points you should pay to lower your rate, have your mortgage professional calculate the Break Even point for each option. The break-even point is the amount of time it will take for your monthly savings to add up to the cost of each additional discount point.
If you pay discount points to recieve a lower rate you will also pay origination fees to your mortgage broker. By selling you the lower discounted rate your mortgage broker will recieve no compensation from the lender and will need to be paid for their services by the borrower.
Discount points are tax deductable over the life of the loan.
Discount points are paid by a borrower to obtain a lower rate on their mortgage. Discount points are generally only recommended when you plan on staying in your current mortgage for many years. Sometimes discount points may be necessary to lower the rate on your mortgage so that you meet a lender's DTI (Debt to income Ratio) guidelines.
Discount points are Tax deductible, while Origination point are not usually Tax deductible.
Discount Points Vs Origination Points - What is the difference between discount points and loan origination points?
You purchase discount points to lower your interest rate. Origination points are a fee paid to the originating lender which are part of the profit margin for the services that they provide. Both are measured as percentage of the loan amount and both are factored into the loan’s APR. Generally, points are deductible as long as the seller didn’t pay for them and origination fees are tax deductible provided they are expressed as a percentage.
The "Points" you hear so much about are in fact the Discount Points, used to obtain a lower rate than you would qualify for otherwise to get a comfortable monthly payment.
Discount mortgage broker - "What is a discount mortgage broker? And who pays them, me or the lender?
A "Discount" Mortgage broker, gets paid by rebates from the bank, the downside to this is it either a higher rate or a longer prepayment penalty, than using a traditional mortgage broker. Be sure to check you good faith estimate to see if your getting the best deal possible.