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What Are Points? The term "points" is heard all the time in the real estate and mortgage businesses, yet most people haven't a clue as to what it means. Lenders make money on the money they lend to buyers. There are two different ways they can do this. The first is by charging a "flat fee" for the use of their money or secondly, by charging an on-going fee. The on-going fee is "interest". The flat fee is what is referred to a "point". A point is 1% of the amount of the money borrowed. By charging "points" at the time of granting the loan, the lender can increase the profit on the money loaned. For example, a lender gave a borrower the following choices: Rate Fee Payment ($80,000) 9.50% 0.00% $672.68 9.00% 1.50% $643.70 8.50% 3.75% $615.13 8.00% 6.25% $587.01 The difference in monthly payments between the high and low rates is $85.67 per month. The additional cost to the borrower is $1200.00. However, it will take 42 months of lower payments to make up the additional loan cost charged at the time of closing. Most lenders today offer loans with a competitive interest rate requiring no points. Print This Page                                                                                                                                             Return to Top of Page Buyers Best Choice is a true Personal Service Real Estate Agency located in Colorado. Web Design by Amaasing Designs