What are lender points considered as?

Lender points, often referred to as discount points or origination points, are indeed considered pre-paid financing charges. They are fees that a borrower pays to the lender in order to lower the interest rate on a mortgage loan. Essentially, one point equals one percent of the loan amount. By paying points upfront at closing, borrowers can secure a lower interest rate, which can result in significant savings over the term of the loan.

This concept is crucial for borrowers who are evaluating their loan options and trying to determine the most cost-effective way to finance a property. Understanding that these points function as a form of pre-paid interest helps borrowers make informed decisions about how much they wish to pay upfront in exchange for a reduced interest rate and lower monthly payments throughout the life of the loan.