What is a mortgage discount point?

A mortgage discount point, also known as a “point”, is a fee charged by a lender when taking out a mortgage loan in the state of Virginia. This fee is paid upfront by the borrower, and it is used to adjust the interest rate of the loan. Each mortgage point is equal to 1% of the loan amount. When a borrower pays one point, their loan’s interest rate is reduced by .25%. Thus, if a borrower pays one point on a $400,000 loan, they will be charged $4,000 upfront. While borrowers have to pay the upfront fee, the payment decreases the amount of interest they will pay over the life of the loan, potentially saving them a great deal of money in the long run. It is important to make sure that this cost of purchasing a point will be recouped through the savings in the loan’s interest rate over the life of the loan. Virginia lenders must follow all of the federal regulations of mortgage loans and the criteria of the Mortgage Bankers Association of America.

Related FAQs

What is the difference between a home equity loan and a refinance?
What is the effect of pre-payment penalties on a mortgage?
What is an escrow account?
What is a loan-to-value ratio?
What are the eligibility requirements for a mortgage?
How can I reduce the costs of my mortgage?
What is a first mortgage?
What are the differences between a lender and a mortgage servicer?
How does my credit score affect the mortgage interest rate I qualify for?
What is a “no cost” mortgage?

Related Blog Posts

What Home Owners Need to Know About Mortgage Law - July 31, 2023
The Basics of Mortgage Law: A Comprehensive Guide - August 7, 2023
Understanding Prepayment Penalties and Mortgage Law - August 14, 2023
Securing Your Mortgage Loan: Key Considerations Around Mortgage Law - August 21, 2023
Refinancing Your Home Loan: What Mortgage Law Protects You - August 28, 2023