What is a point in real estate finance?

In real estate finance, a point refers specifically to a loan fee that is equivalent to one percent of the total loan amount. This fee is often charged by lenders and can be used to either reduce the interest rate on the loan or as part of the closing costs when obtaining a mortgage. Borrowers may choose to pay points upfront when securing a loan to potentially lower their overall borrowing costs in the long run, through reduced monthly payments or total interest over the life of the loan.

Understanding this concept is critical for homebuyers and real estate professionals as it directly impacts the financing terms of a mortgage. By being aware of how points work, borrowers can make more informed decisions regarding their financing options, leading to significant savings or changes in mortgage terms.