FHA Discount Points

Discount Points

Discount points fill the gap between interest rates and allowing the lender to make the loan at a lower rate. A lender has a choice of making a loan at 7 percent or at 7½ percent interest rate. Points allow lenders to lower rates while maintaining their profit margins. One point is equal to 1 percent of the amount of a loan. For a $150,000 mortgage loan, one point would be equal to $1,500.

The value of points can vary depending on current financial markets, lenders generally consider that it takes roughly 1 point to lower a loan's interest rate by .25 percent.

If the lender offers an option of paying points for a certain rate of interest, the borrower must consider several important factors. One of the main issues to regard is the length of time that the borrower will own the property and keep the mortgage. At some point in time during the loan, the points will have paid for themselves and begin to save the homebuyer money.

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