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What Are Points?

Lenders charge points to balance the return on your loan to other returns available.  They loan you money so they can make money. The devise used to balance the returns is called points. One point represents one percent of the price of the loan (not the price of the home.)  In other words, one point translates into $1,000 paid up-front on a $100,000 loan.  So, if a lender charges you three points,  you will pay $3,000 on a $100,000 loan.  Usually the more points you pay the lower your interest rate will be.

Lenders are great at offering you variety.  Unfortunately it can be difficult to determine which of their many options will save you the most money.  For example, if a lender offers you two plans: an interest rate of 8.25 percent with one point or an interest rate of 7.5 percent, with three points. Which loan is cheaper?  It really depends on how long you stay in your home. The longer you keep a home the cheaper those points become.  However, if you plan to sell your home soon after you buy it, those points really start to hurt. Point Calculator