When you shop for a loan, you should look at more than the interest rate alone. Mortgage loans usually require the payment of discount points in addition to the various fees associated with originating the loan. These points are additional interest paid at the time the loan is closed and can add substantially to the cost of the loan. When the lender quotes an interest rate, it is usually expressed as “eight percent plus two points.”

Each point is a charge of 1 % of the amount of the loan. For example, if you are seeking a loan of $98,000, one point would cost you $980. At the closing, the lender will advance only $97,020 ($98,000 less $980), and you must make up the difference. Alternatively, you can write a check to the lender for $980 and the lender will advance the full amount. There is no real difference, except for tax purposes. If you write a check for the points, you should be entitled to an immediate tax deduction for the points, provided you are getting the mortgage to buy a principal residence (refinancing will not qualify) and that the points are a customary charge in your local area. More->