What does one point represent in mortgage terms?

In mortgage terms, one point represents a fee equivalent to 1% of the total loan amount. This fee is typically paid at closing and can be used to reduce the interest rate on the mortgage loan, thereby lowering monthly payments. Paying points upfront can be a strategic decision for borrowers looking to save money over the life of the loan by reducing their interest rate.

When points are paid, they effectively lower the borrower's ongoing interest costs, making them an attractive option for those who plan to stay in their home long-term. Borrowers may choose to pay points based on their financial goals and the overall loan structure, making it crucial to understand this concept in mortgage transactions.