Points are a percentage of the loan amount being borrowed for a home loan. Points are not based on the sales price of the house, but rather the loan amount. Points are based on the interest and home mortgage loan rate market, and they are charged to the mortgage loan. There are ways for lenders and mortgage companies to adjust the home mortgage loan rate market a little bit because home mortgage loan rates are constantly changing on the market, so it’s virtually impossible to keep up with the home mortgage loan rates without creating self-checks.

The point amount is paid when the loan closes. When it is a VA loan, the Veterans Administration states that the points need to be paid by the seller. However, on a regular loan (unless stated otherwise in state laws for each state), either the buyer or the seller can pay the points.

Some absolutes to remember: one point always equals one percent of the loan amount. However, all home loans may not have points; sometimes, the market rate is stable enough to not require one, or sometimes mortgage lenders have special deals for “0 point” home loans. In this case, the mortgage lender will adjust the market rate difference out of their own pocket. When there are points, the mortgage company determines the number of points.

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Reference text: Mortgage Loans: What’s Right for You?, by James E. Bridges with Deborah J. Bridges. Copyright 1989, Published by Betterway Publications, Inc., Crozet, VA