How Do You Calculate Points On A Loan?
Points on loans are most often found on secured loans–specifically mortgages. Points are percentages of a total loan amount. Points are either added to a principal loan amount or paid out of pocket by a borrower. There are two different types of mortgage points: origination points and discount points. Origination points are often called “the cost of doing business,” while discount points can be paid to reduce a mortgage interest rate. Calculating these points is easy. Decide whether to pay discount points. When offered, discount points will reduce the interest rate on the loan by the amount paid. So, for example, if you are obtaining a $200,000 mortgage at a 6 percent rate, you may be able to pay one point ($2,000, or 1 percent) to reduce your interest rate to 5 percent. Separate your origination points from your discount points. In most cases, the origination points are non-negotiable. These points are based on your credit score and your income. The higher your credit score, the lowe
