What are origination points and discount points, and how do they affect what a mortgage loan costs me?
The terms “Origination Points” and “Discount Points” are generally used interchangeably, but Origination Points are associated with conventional loans and Discount Points are associated with government loans such as FHA or VA. A point is one percent of the loan amount. Lenders charge points for lower interest loans, and the borrowers should evaluate their situations in deciding the best combination of interest rates and points for them. For example, a lender might charge 1.875 points for a 6.5% interest-rate, 30-year fixed-rate loan and no points for a 6.87 % interest-rate, 30-year fixed-rate loan. For a loan amount of $200,000, if the borrower intends to stay in the home for the life of the loan, the lower interest loan would save $17,899.77 in interest over the life of the loan while costing the borrower $3,750 in points. If, on the other hand, the borrower intended to give up the loan (due to selling the property or refinancing the loan) after 3 years, the interest savings would onl
