Origin points are fees paid by borrowers to lending institutions when applying for a loan, typically in the real estate and mortgage sector. The borrower’s credit score and risk of the loan determine if points are charged, with each point equal to 1% of the total loan. Discount points are assessed to lower mortgage rates and are tax deductible, while origin points are not. A “no cost” mortgage is an option, but some closing costs and fees are always charged.
Origin points are the costs that borrowers pay when applying for a loan. Such points are especially common in the real estate and mortgage sector. These points, or fees, are paid to the lending bank or lending institution to compensate the lender for underwriting and approving the loan.
Not all loans require origin points to be paid. On some home loans, points are not required. In others, multiple points may be charged.
Lenders make decisions about whether to charge these points based on a number of different factors. The borrower’s credit score, which indicates creditworthiness, is often an important factor in a lender’s determination of whether points are appropriate. This score and other factors that indicate the risk of the loan to the bank determine not only whether points are charged but also how many points are assessed.
Each origination point is equal to a percentage of the total principal borrowed. Typically, each point is equal to 1 percent of the total loan. This means that if you borrow $100,000 United States Dollars (USD), a single point of origin would cost $1,000 USD.
When a lender determines that such items are appropriate, the lender must disclose these items to the buyer. An explanation of the assessed costs and items is usually included in a good faith estimate provided to the borrower. The borrower can then determine how much the home loan will cost, factoring in the cost of points, to decide which lender offers the best deal.
Origin points are different from discount points. Discount points are assessed when an individual wants to lower their mortgage rate. When a borrower purchases discount points, each point he purchases results in a 0.125 percent discount on the interest rate he will pay on his loan.
There are several fundamental differences between origin and discount points. First, borrowers can usually decide if they want to pay discount points, whereas if a lender determines that origination points are required, the borrower must pay to get the loan. Second, discount points are tax deductible, while origin points are not.
A borrower wishing to avoid points of origin can apply for a “no cost” mortgage. However, buyers should be aware that there is no such thing as a true “no cost” mortgage. Some closing costs and fees are always charged, such as appraisal fees and title fees, but those costs may be paid by the seller or transferred to the loan so the borrower can purchase without paying any initial closing costs.
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