Mortgage points are percentage points on your loan amount. One point is the same as one percent of your loan amount.

What Are Points Used For?

Points are used at the time of closing for your loan. A lender might require you to pay three points at the time of closing. If you have a $100,000 loan and the lender is requiring you to pay four points at the time of closing, you’ll owe four percent or $4,000.

Points are not always required by lenders. There are many lenders who will give you a loan without you putting any points down at closing. Lenders will use points as part of their return on their investment with your loan. You use points as part of your interest payments on your home loan and a credit in your account with your lender.

The Benefit of Using Points

The main benefit of putting a certain number of points down on your loan at closing is that you can get a lower interest rate. You may be able to get a loan for 7.5 percent, if you don’t put any money down in points. But you might be able to get a loan with an interest rate of 6.75 percent, if you put down four points toward your loan. This can be a great deal for a borrower looking to get a better interest rate who sees the value in paying more money now to pay less later.

Tax Implications

When you pay mortgage points, you can use this as a deduction on your income tax returns. It’s considered an interest payment. If you pay four points on your $100,000 loan, you can deduct that $4,000 on your income tax return for the current calendar year.

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