Legal Definitions - mortgage discount

A mortgage discount is the difference between the mortgage principal and the amount the mortgage actually sells for. It is an up-front charge by a lender at a real-estate closing for the costs of financing. This charge is also known as a point, mortgage point, loan-brokerage fee, or new-loan fee.

For example, if a homebuyer takes out a mortgage for $200,000 but the lender only gives them $195,000, the mortgage discount is $5,000. This amount is usually paid by the buyer, but in some cases, the seller may be required by law to pay it, such as with a VA mortgage.

The mortgage discount is an important factor to consider when taking out a mortgage because it can affect the overall cost of the loan. The more points a borrower pays, the lower the interest rate on the loan. However, paying more points upfront also means higher closing costs.