Resources - Mortgages

Loan Points (Loan Origination Fees or Loan Discounts) are a fee charged to a borrower by lending institutions for the privilege of obtaining a loan. Each point is equivalent to one percent of the amount borrowed. Generally, the greater the risk to the lender, the larger the loan origination fees and the higher the loan interest rate.

Loan-origination fees are usually paid up front in cash when you obtain a loan or mortgage. As a borrower you want to obtain the lowest interest rate with the least number of loan points. If you do not wish to pay upfront points, you can often obtain a loan with no loan-origination fees.

Loan points paid to purchase a home are deductible. Origination fees of income property mortgages, and refinancing mortgages, must be deducted over the term of the mortgage. If you pay off the balance of the mortgage early, you can deduct all unused points in that year.

For example, you obtain a 30-year mortgage for $100,000 and pay 1 point. To obtain the loan, you are required to pay 1 point or $1,000 up front. You are allowed to deduct 1/30th of this amount each year or $33.33.