What Are Points and How Can They Affect You?

Today we are going to answer the question, “what are points and how can they affect you?” When you get a loan, you might hear someone say, “This loan has points.” But what does that really mean?

Points are fees you pay upfront to get a better deal on your loan. Each point usually costs 1% of your loan amount. So if you borrow $200,000, one point would cost you $2,000.

There are two kinds of points:
Discount points and origination points.
Discount points help lower your interest rate.
Origination points are fees lenders charge to give you the loan.

Let’s look at an example.
You’re getting a loan for $200,000:

• No points: You pay a 7% interest rate.

• Buy 2 points for $4,000: Your rate drops to 6.5%.

That lower rate could save you thousands over time!
But it takes a while to break even. If you sell or refinance the home too soon, the points may not be worth it.

Points can help you save money, but only if they fit your long-term plan.

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