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Nathan Pierce

Loan Officer

NMLS ID 12920

801-272-0600 nathan@advancedfunding.com

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Discount and Origination Points Explained

Discount and Origination Points Explained

April 4th, 2018 | Refinance, Interest Rates, Home Buying or Selling, Mortgage Basics

Do you know the difference between discount points and origination points? These are two important terms any home buyer should understand.

Each type of point is equal to one percent of your total loan amount. For example, on a $200,000 loan, one point would be equivalent to $2,000.

Discount and origination points, however, do different things. Origination points are paid to either the mortgage lender or mortgage broker for their services. Some mortgage companies in Salt Lake City charge origination fees in the form of a point, while others just charge a set amount for originating a mortgage loan. Advanced Funding generally does not charge an origination fee. Origination points are generally not tax deductible.

Discount points are essentially prepaid interest. Each time you purchase a point, you have the opportunity to lower your mortgage rate by a fraction of a percent. Paying for a discount point or two is a way to “buy down” your mortgage rate. If you itemize your taxes, discount points may be tax deductible, just like mortgage interest. (Tax laws do change over time, so it’s important to consult a tax professional about your home purchase.)

When it comes to discount points, you may wonder if they make sense for you when buying a home in Salt Lake City, Utah or surrounding areas. A big factor is whether you have the extra cash and whether you’ll be in your home long enough to make the upfront cost worth it based on the savings from a lower mortgage rate. The longer you plan to be in your home, the more it makes sense to pay the upfront cost to get a lower mortgage rate.