Mortgage Costs: What is a Discount Point/Fee? What is an Origination Point/Fee?

2020 has been the year of the Coronavirus and with that has come many changes to our world.  One thing we have seen a resurgence of is mortgage lenders charging points.  In the last decade we have seen and gotten used to not being charged origination or discount points when getting a mortgage.  Since 2008 and the great recession, lenders have been handing out interest rates low enough without having to charge additional costs.  This year due to the global Covid19 Pandemic we are seeing some lenders unwilling to sell a mortgage without getting more money upfront in the form of points to help mitigate future losses.

Some borrowers may not know what to look out for when shopping for their new mortgage when it comes to paying these up front costs.  Here is a quick break down of what to expect and what the difference is between Discount Points and Origination Points.

Discount Points:

Discount points are prepaid interest in your mortgage.  When you opt to pay for discount points, you are buying down your interest rate.  Discount points are usually charged as a % of your loan amount.  For example most lenders inform you that the rate they are offering will cost 1% discount point/fee to obtain.  If you are doing a $250,000 loan, then your discount fee is $2,500.  If you opt to not pay the discount fee then your interest rate will be higher.  This form of points is tax deductible since its prepaid interest in your mortgage.

Origination Points:

Origination points are not prepaid interest in your mortgage.  This form of points is the fee your loan originator is charging you to do the loan.  It’s their compensation or the commission they will earn when the loan closes.  You will see origination points/fees as a % of the loan amount or just a flat rate fee listed on the loan estimate.  This form of points is not tax deductible.  They are similar to discount points that usually you are getting a lower interest rate when you are being charged them, but this is not necessarily the case. It’s best to ask your loan originator to show you the difference if you don’t want to pay the origination points/fees.

In a perfect world you are looking for the best rate without paying any points.  Here are Wiser Lending we are still able to offer a below market rate without any points or origination fees.  We are designed to operate this way, so we remain the Wiser Choice for home loans, even during a Global Pandemic.

Contact us Today for a FREE Quote and select our NO point mortgages.  Stay Safe and Healthy!

Eric Weishaar

President | NMLS# 207659