Legal Definitions - mortgage point

Definition: A mortgage point is a fee paid upfront to a lender in exchange for a lower interest rate on a mortgage loan. One point is equal to 1% of the total loan amount.

For example, if you are taking out a $200,000 mortgage and the lender offers you a rate of 4% with no points, you could choose to pay one point ($2,000) upfront to lower your interest rate to 3.75%. This would save you money on interest over the life of the loan, but would require a larger upfront payment.

Another example would be if you are taking out a $500,000 mortgage and the lender offers you a rate of 3.5% with no points. You could choose to pay two points ($10,000) upfront to lower your interest rate to 3%. This would also save you money on interest over the life of the loan, but would require a larger upfront payment.

The examples illustrate how paying mortgage points can be a way to save money on interest over the life of a mortgage loan, but requires a larger upfront payment. It is important to consider your financial situation and how long you plan to stay in the home before deciding whether or not to pay mortgage points.