Origination points are fees charged by lenders to cover the administrative costs of obtaining a mortgage. These points, which are commonly referred to as “points,” are paid as a percentage of the mortgage amount. One point is typically equal to 1% of the mortgage amount. For example, for a $100,000 loan, one point is equivalent to $1,000.

Origination points can be used to pay for loan processing, loan application fees, credit report fees, and other costs associated with obtaining a mortgage. These points are often referred to as “loan discount points” because the more points paid, the lower the interest rate on the mortgage. That is, points can be used to buy down the interest rate.

Not all lenders charge origination points, and those that do may differ in the number of points charged. Therefore, comparison shopping among lenders can pay for a borrower in terms of loan costs. It is important to ask about origination points when shopping for a loan.

It is also important to note that origination points are not tax-deductible. Mortgage discount points are deductible, but origination points are not. Despite this, paying origination points can still have an overall benefit. This is because the reduction in interest rate that can be attained by paying origination points can result in a much larger savings for the borrower in the long-run.

In conclusion, when shopping for a mortgage loan, it is important to ask about the origination points being charged. The more points paid, the lower the interest rate. This can result in significant savings for the borrower. However, it is important to keep in mind that origination points are not tax-deductible. Therefore, borrowers must weigh the cost of paying origination points against the potential long-term benefits when shopping for a mortgage loan.