Am I Paying Points for that Rate?

Discount points are upfront fees a borrower can pay to a lender in exchange for a lower interest rate on their loan.  “Points” or “investment points” as they are often referred to, are also tax deductible.  Some ways of finding out if a lender is charging discount points are listed below.

1. Ask the lender directly: The most straightforward way to find out if a lender is charging discount points is to ask them directly. They should disclose any fees associated with the loan.  Ask the lender for a “rate at par”.

2. Check the loan estimate: When you apply for a mortgage loan, the lender is required to provide you with a Loan Estimate within three business days of receiving all the pieces of an application. This document will list the interest rate, any points, and fees associated with the loan. Check the loan estimate to see if any discount points are included.

3. Look at the annual percentage rate (APR): The APR is the total cost of the loan, including interest and any fees, expressed as a percentage. If the APR is significantly higher than the interest rate, it may be an indication that discount points are being charged.  For example, if your note rate is 6.50% and the APR is 13%, this may indicate additional fees were charged.

4. Review the closing disclosure: Once your loan is approved, the lender will provide you with a Closing Disclosure at least three business days before closing. This document will list all the final terms and costs associated with the loan, including any discount points that were charged.

By using one or more of these methods, you should be able to determine if a lender is charging discount points on your loan.