Discount point

Discount Point

One percentage point of the principal of a mortgage loan that some lenders require borrowers to pay immediately as a condition of making the loan. That is, if the lender makes a mortgage loan, it may require the borrower to pay a certain amount of discount points up front. The amount paid is deducted from the interest the borrower would otherwise owe on the loan. Discount points are tax deductible for the borrower because they qualify as prepaid interest.

Discount point.

Some lenders require you to prepay a portion of the interest due on your mortgage as a condition of approving the loan. They set the amount due at one or more discount points, with each discount point equal to 1% of the mortgage loan principal.

For instance, if you must pay one point on a $100,000 mortgage, you owe $1,000.

>From your perspective, the advantages of paying discount points are that your long-term interest rate is lowered slightly for each point you pay, and prepaid interest is tax deductible. The advantage, from the lenders' point of view, is that they collect some of their interest earnings up front.

References in periodicals archive ?
To be excluded, a bona fide discount point for a closed-end loan paid by the borrower for the purpose of reducing the interest rate and the interest rate reduction per discount point paid must be consistent with established industry practices.
Lewis explained that, in addition to the incentives mentioned, Fifth Third also is offering an additional u percent discount point savings (an estimated $750 savings) if a customer has the monthly mortgage payment automatically deducted from a Fifth Third Bank account.
5 percent discount, which is not a bona fide discount point because it wasn't used to lower the rate.
Lowest rates shown reflect the payment of one discount point.
44%, with borrowers paying 1% in discount point plus closing costs.
I explained at the meeting and in my letter that the term bona fide discount point must be clearly defined because the nature of the reduction can make it vary considerably, depending on such circumstances as the rate and the present value of the dollar at the time of origination.
Discount point payments made by consumers would need to he bona fide, and used solely to buy down the interest rate.
Not an offer to enter into an interest rate or discount point agreement under Minn.
The amendments include (1) an amended Consumer Complaint Notice and a new Mortgage Broker Recovery Fund Notice, (2) new prohibitions and requirements concerning labeling a fee a discount point and (3) new advertising requirements.
15, the CFPB released new HMDA reporting requirements, under which credit unions will have to collect new facts, including an applicant's debt-to-income ratio, the interest rate of the loan and the discount points charged for the loan.
Discount points and pre-paid items can be paid by the seller or other third party up to the amount allowed by the product guidelines.