What are loan points?
In order to obtain a specific interest rate, or in some cases to obtain a loan at all, the lender may charge you points. For example if you wish to borrow $300,000 your lender or broker may offer a few choices: • 5.50% with a 2 points fee • 5.75% with a 1 point fee • 6.00% with a 0 points 1 point is equal to 1% of the total loan amount On a $300,000 loan each point means you have to pay $3000 up front, so to get the 5.50% rate you would have to come up with $6000 in points at closing. Note: Loan Points are usually described as pre-paid interest and may be tax-deductible, either in the year they are paid or over a period of time.
