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 a “no cost” mortgage?
What is the difference between a fixed-rate and a variable-rate mortgage?
What type of mortgage should I choose?
What are the risks of taking out a mortgage?
What is a home equity line of credit (HELOC)?
What are the different types of mortgages available?
Why is an adjustable rate mortgage (ARM) beneficial?
What is a mortgage-secured line of credit?
What is a bi-weekly or accelerated mortgage payment plan?
What is a bridge loan?

What is a mortgage discount point?

Related FAQs

Related Blog Posts