So What’s the Deal with Points and Origination Fees for Loans?

Written By Mary Beth Eastman
Last updated July 16, 2019

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July 16, 2019

Simple. Thrifty. Living.

If you’re looking into getting a mortgage or a personal loan, you’ll notice some extra fees called points and origination fees. But what do these terms really mean? It’s essential to understand all the fees you’ll pay for any loan you get, so you’re not caught off guard by extra costs for getting your loan. Here’s what you should know about points and origination fees:

Discount points or points is the prepaid interest you pay on your mortgage to lower the interest of your loan. Each point equals a reduced rate up to one-quarter percent off your mortgage interest rate. For instance, if you qualify for a 4.5-percent interest rate for a 30-year fixed rate mortgage, you can buy one discount point to reduce that interest rate to 4.25 percent. Many lenders allow you to buy down the rate and purchase anywhere from one to four discount points.

However, it’s important to note that the rate reduction per point can differ from lender to lender. The current market conditions may also impact the reduced rate per points.

When you take out a mortgage or personal loan, you may be charged origination fees. The bank issuing your mortgage may also refer to origination fees as mortgage points. Your lender may charge this fee to compensate for the loan officer who processes your mortgage or personal loan. Luckily, not all lenders charge origination fees. Lenders typically charge up to one point of origination fees to your account. It’s important to research all of your options, including which lenders charge origination fees, before committing to your loan. We’ve done the heavy lifting for you in our roundup of the best online loan sites, comparing apples to apples so you can see which loan is best for your needs. For example, this Upstart review goes into detail about what you can expect in terms of origination fees on a personal loan.

If you can get more discount points to help reduce your rate, then it’s worth considering paying. Points are tax deductible and you may get up to four discount points. Moreover, a lower interest rate means more money in your pocket and a lower loan payment over time.

Origination fees can add up quickly and take away from money you can spend on repairs or remodeling your home. While some borrowers pay origination fees, these fees aren’t set in stone. So, it’s worth talking to your lender to determine if they charge origination fees and inquire about waiving the fee to save you money.

Whether you’re getting a mortgage or a personal loan, it’s important to know all the costs involved, including points and origination fees. By gaining an understanding of these two common fees, you can ensure you understand your loan summary and determine if the offer you’re taking is a good fit that meets your needs.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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