What does a "point" represent in real estate financing?

In real estate financing, a "point" is defined as a fee that equals 1% of the loan amount. This charge is often associated with loan origination fees, which lenders may collect to process the loan. Additionally, points can also be used to reduce the interest rate on a mortgage; this is known as a "discount point." By paying points upfront, borrowers can lower their monthly payments over the life of the loan, which can lead to significant savings overall.

Understanding the concept of points is essential for borrowers as it can affect the affordable costs of financing a home. Points can be a strategic part of a loan negotiation, making it important for real estate professionals and borrowers alike to comprehend this financial tool.