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.
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