Origination points are fees a lender charges to originate (process and underwrite) your mortgage; one point equals 1% of the loan amount (for a $300,000 loan, 1 point = $3,000).
Lenders itemize origination charges on the Loan Estimate and Closing Disclosure so you can see upfront how much the lender is charging to create the loan; the line groups the lender’s fees (sometimes labeled “origination fee,” “underwriting fee,” or “loan officer compensation”) so you can compare offers and know your closing costs.
- Origination points: Typically a percentage of the loan (1 point = 1%) used to compensate the lender for originating the mortgage. Often synonymous with “origination fee.”
- Origination fee: The dollar amount (or percentage) the lender charges to process the loan; may be shown as “points” or a flat fee.
- Discount points: Paid to the lender to permanently buy down the interest rate (each discount point is usually 1% of the loan and lowers the rate by an agreed amount). Discount points are functionally different because they’re intended to reduce the interest rate; origination points usually do not lower the rate and are lender compensation. (See discount points for details: https://www.turbohome.com/glossary/discount-points)
Calculation is straightforward: points × loan amount = cost.
Example: 1 point on $300,000 = 0.01 × $300,000 = $3,000.
Example: 2 points on $300,000 = 0.02 × $300,000 = $6,000.
On the Loan Estimate and Closing Disclosure they typically appear under “Loan Costs” → “A. Origination charges” or as an itemized origination fee. The Closing Disclosure also shows the total closing costs and cash needed at closing where points are included.
Only discount points are paid specifically to lower the interest rate. If a lender labels a charge as an origination point but doesn’t lower your rate, it’s a fee, not a rate buy‑down. Always ask the lender to confirm whether a point is a discount point (reduces rate) or an origination fee (does not reduce rate).
- If points buy down the rate: upfront cost increases, monthly payment and total interest decline; APR may fall (APR factors in upfront costs).
- If points are a pure origination fee: upfront cost increases, monthly payment and interest rate do not change (APR will rise because APR accounts for fees).
When comparing offers, use APR and a monthly‑payment view plus total cash at closing to understand tradeoffs.
Basic break‑even formula: Months to break even = Cost of points ÷ Monthly payment savings.
Steps: 1) Calculate the upfront cost of points. 2) Calculate monthly payment at the higher and lower rates. 3) Subtract to get monthly savings. 4) Divide cost by monthly savings to get months to break even.
Scenario: $300,000, 30‑year fixed.
- No points: interest = 4.50% → monthly payment ≈ $1,520.06.
- Pay 1 discount point ($3,000) to get 4.25% → monthly payment ≈ $1,475.69.
- Monthly savings = $1,520.06 − $1,475.69 = $44.37.
- Break‑even = $3,000 ÷ $44.37 ≈ 67.6 months ≈ 5.6 years. If you expect to keep the loan longer than ~5.6 years, the discount point pays off; if you sell or refinance sooner, it does not.
Key factors: how long you’ll live in the home, likelihood of refinancing, expected interest‑rate movements, and available cash at closing. If you plan to move or refinance within the break‑even period, avoid paying points to buy down rate.
- Buyer‑paid: Most common—points are paid from borrower’s cash at closing.
- Seller‑paid: Seller concessions can cover points (subject to program limits and lender rules).
- Lender credits: Lender may offer credits that reduce closing costs in exchange for a higher rate (opposite of paying points). Ensure any concession is reflected on the Closing Disclosure.
Pros: preserves cash at closing; easier cash flow.
Cons: increases loan principal, you pay interest on the financed points over the life of the loan, may delay or eliminate tax benefits, and changes break‑even calculations because the financed amount accrues interest.
- Discount points on a purchase of your primary residence are generally deductible in the year paid if they meet IRS rules (must be customary, clearly disclosed, and not for other services).
- Points paid on a refinance are generally deductible over the life of the loan (amortized), not all upfront, unless specific exceptions apply.
- Fees that are origination compensation (not bona fide discount points) are typically not deductible as mortgage interest. Always confirm with a tax advisor and your tax software or preparer for current IRS guidance.
Keep the Closing Disclosure or HUD‑1/settlement statement showing points as a separate line item, and any lender statements confirming the portion of fees classified as points. Your tax preparer will need these to substantiate a deduction.
- Purchase loans: some lenders charge 0–2 points; many competitively priced loans have no origination points but may have other fees.
- Refinances: similar range, but refinance fee structures vary—some lenders charge more for rate/term refinances or cash‑out refinances.
- Jumbo loans: can carry higher origination fees or additional lender overlays because of higher risk and less standardization.
Expect variability by lender, loan program, and region. Always request a comparative Loan Estimate showing the same loan parameters and ask for a version with and without points so you can compare apples to apples.
When comparing offers, evaluate three numbers together: APR (captures fees + rate), monthly payment, and cash required at closing. APR is useful for comparing total cost if you keep the loan long term, but monthly payment and break‑even analysis are critical for short‑to‑medium horizons.
- Is the point a discount point (rate buy‑down) or an origination fee?
- Exact dollar cost of points.
- Interest rate and monthly payment with and without points.
- APR with points included.
- Who pays the points (buyer/seller/lender credits)?
- Are points financed and what is the resulting loan balance?
- Request both Loan Estimate and Closing Disclosure scenarios in writing.
Red flags include vague “processing fee” or “points” without explanation, pressure to accept “only today” pricing, or fees that aren’t itemized. If a lender resists providing an itemized Loan Estimate or won’t show a no‑points scenario, walk away or get a second opinion.
Ask: “Is this point a discount point or origination fee?” “How much does the point reduce my interest rate?” “Please show the loan with and without points on a Loan Estimate.” Request full itemization in writing and keep copies of all disclosures.
Buyer: Amy. Loan: $300,000, 30‑year fixed. Two lender offers:
- Lender A (no origination points): Rate 4.50%, monthly ≈ $1,520.06, upfront points cost = $0.
- Lender B (charges 1 origination point as a fee): Rate 4.50% (no rate benefit), monthly ≈ $1,520.06, upfront cost = 1% × $300,000 = $3,000.
Bottom‑line: Lender B charges $3,000 for no rate benefit — worse for Amy unless that fee buys some other service or reduces another cost.
Alternative comparison (discount point case): If Lender C charges 1 discount point ($3,000) and lowers rate to 4.25%, monthly ≈ $1,475.69, monthly savings $44.37, break‑even ≈ 67.6 months (~5.6 years). If Amy plans to stay >5.6 years, the discount point can make sense; if she expects to move or refinance sooner, it does not.
If the “point” does not lower the rate, it’s typically avoidable—get the lender to remove or explain it. If the point is a discount point, run the break‑even math and compare with your expected time in the home.
No. An origination point is usually a fee charged to originate the loan; a discount point is paid specifically to reduce the interest rate. Always confirm which one you’re being charged.
Yes. Points and fees are often negotiable—ask for alternatives (no‐point pricing, credits, or a lower fee) and shop multiple lenders.
Points increase upfront costs and will raise or lower APR depending on whether they are fees or rate buy‑downs; the Loan Estimate must show them so you can compare APRs and cash needed at closing.
Typically no — most fees paid at closing are final. If you paid an upfront lender fee in advance of closing, get the lender’s policy in writing; many fees are refundable only under specific circumstances. Always confirm refund policies in writing.
- Avoid paying points labeled as origination fees that do not lower the rate.
- Consider paying discount points only if your expected ownership period exceeds the break‑even time.
- If cash is tight, avoid paying points; use rate vs. cash tradeoffs to decide.
Use a mortgage payment calculator, an APR comparison tool, and a break‑even calculator (months = cost ÷ monthly savings). Many lender and bank websites offer these; you can also ask your loan officer to provide a written break‑even example.
Look for: mortgage payment calculators, “points break‑even” calculators, and APR comparison tools on major lender sites or financial portals. Use the Loan Estimate to plug numbers into any of these tools.
Ask your loan officer: “Is this point a discount point or an origination fee?” “Show me a Loan Estimate with and without points.” Ask your agent: “Can the seller cover points as a concession?” and “Does paying points make sense in this neighborhood given expected time in the home?”
If you’d like, I can now expand any section into full content (including the numeric examples, a printable checklist, or a comparison table). Which sections do you want drafted first?
