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One point is equal to 1 percent of the principal amount of a mortgage loan. For example, if a mortgage is $200,000, one point equals $2,000. Origination points are frequently charged by lenders, in both fixed-rate and adjustable-rate mortgages, to cover the lender's loan origination costs. Points can also be charged to provide additional compensation to the lender or broker. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs. Discount points (sometimes called discount fees) are points that the borrower voluntarily chooses to pay in return for a lower interest rate. Typically, a one point discount fee will reduce the interest rate on the loan by .25%.


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