- REDIRECT
Points, sometimes also called "
discount points", are a form of pre-paid
interest. One point equals one percent of the
loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated
interest rate. Borrowers can offer to pay a lender points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment. In United States, for each point purchased, the loan rate is typically reduced by anywhere from 1/8% (0.125%) to 1/4% (0.25%).
