Identification

• Points are fees charged by the mortgage broker or lender in exchange for servicing your loan; they are essentially prepaid interest. One point is equal to 1 percent of your loan amount. Always ask your loan officer or broker what the difference in interest rate would be if you paid no points.
  
  

Identification

• Points can be referred to as origination fees, broker fees or discount points on loan documents and the good-faith estimate. The different terms are used for different purposes to comply with state and federal laws, but they essentially mean the same thing.
  
  

Benefits

• Paying points up-front--as part of the closing costs--can decrease the interest rate on your loan and subsequently reduce your monthly payment. Also, points often are deductible when you file your taxes, because they are categorized as prepaid interest.
  
  

Making the Decision

• Calculate how long it will take you to recoup the up-front costs through the savings in the interest rate. The general rule is, if you aren't going to pay off the loan for at least three to five years, paying points may be worth it.
  
  

Warning

• Make sure that agreeing to pay points up-front is to your benefit. Your good-faith estimate should clearly lay out how much the loan officer is making and how. It's important to fully understand each of the fees listed on any documents you receive. You also should understand who is paid those fees and why they are being charged.