Mortgage Origination Fees

By Sheryl Landrum Columnist

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Lenders use a lot of different terminology that can be confusing for borrowers looking for a new home loan or when refinancing their current home mortgage loan. One of the more universal terms used is "points." What are mortgage points and how do they affect your new home loan?

In mortgage terminology a point is 1% of the new home loan amount. If your home mortgage loan is 320,000, then 1% of that amount, or a point, would be $3,200. Points can also be called home loan origination fees, discount fees, funding fees, or even commitment or warehousing fees.

Who charges the points and what are they used for? Mortgage origination or discount points are charged by the lender and each lender "caps" the amount of points that can be charged to a borrower. If a borrower pays a point or more to the lender, generally the lender will offer a lower mortgage interest rate than if the borrower pays no points. Borrowers can also be offered the opportunity to pay points to buy down or eliminate prepayment penalties or to reset the mortgage interest rate if pricing improves while the new home loan is in process.

Who pays for the points and are they tax deductible? With a home refinance, the homeowner will make the decision to pay points. With a new home purchase, the buyer and seller of the home may negotiate who pays any mortgage points. Most often points are tax deductible and are amortized over the length of the mortgage loan.

About the Author
Sheryl Landrum is a Senior Loan Officer with Charter Funding, Inc. in Carlsbad, California and a freelance writer on mortgage issues.

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