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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Is there a product discount point where consumers would forsake these principles?
Huffman, "Discount Point Concessions and the Value of Homes with Conventional Versus Non-conventional Mortgage Financing," Journal of Real Estate Finance and Economics 15, no.
For example, using the rate table in Figure 2, Borrower A is quoted a rate of 5.0 percent with 0.5 percent discount point. The 2.0 percent premium paid to the borrower by the lender for the higher rate is used to offset the 2.5 percent LLPA.
15, 2013, Informa's research analysts calculated that the average rate for a purchase 30-year fixed conforming rate mortgage loan was 3.44%, 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.
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.
I asked what he was quoting on a particular note rate, and he replied,"Par." After considering the MBS price, agency guaranty fee buyup and so forth, I concluded that he should have been at 99 (one discount point).
Al Meera Consumer Goods Company (Al Meera) announced yesterday the launch of 'Meera Rewards', a loyalty programme aimed at thanking and enhancing customer satisfaction through discount points and special promotions, among other benefits.