7. What are points?

In the special vocabulary of mortgage lending, "points" are a type of fee that lenders charge (the full term to describe this fee is "discount points".) Simply put, a point is a unit of measure that means 1% of the loan amount. So, if you take out a $100,000 loan, one point equals $1,000.

Discount points represent additional money you can pay at closing to the lender to get a lower interest rate on your loan. Usually, for each point on a 30-year loan, your interest rate is reduced by about 1/8th (or .125) of a percentage point.

TIP: Usually, the longer you plan to stay in your home, the more sense it makes to pay discount points.

(Content Provider: Fannie Mae)