All About Points | No Cost Option

Points, also known as Discount Points, are a source of confusion for many home loan borrowers. When shopping for a loan, your clients have many options with respect to paying points.

A point is calculated as a percentage of the loan amount. For example, 1 point charged for a $100,000 loan would be $1000, and ½ point for the same loan would be $500.

Although "points" are part of the closing costs, they are not considered loan fees. They are an optional feature of the loan, which enable the borrower to buy the interest rate up or down. Interest rates are generally presented in increments of eighths.

The table below shows how different interest rates and points are typically shown. This example is also for a $100,000 loan amount. To get a loan with a rate of 6.00%, the borrower would not pay any points; however, to get a rate of 5.75%, 1.00 point ($1000) would be required.

Example of Rates & Points