Points

Points

Points means:
an upfront fee charged by a lender and intended to increase his or her overall yield. A point is 1% of the total principal amount of a loan. For example, on a $100,000 mortgage loan, a charge of three points equals $3,000. If the payment is only for the use of money, it is considered interest expense and may be deductible (for the original purchase of a principal residence) or amortizable (for the refinancing of a principal residence) by a borrower. Former IRC (check if this IRC provision is current here) §461.

Description and Definition of Points

Points are an additional fee paid to a lender. A charge a borrower pays for taking out a loan. Points are generally stated as a percent of the total amount borrowed and are in essence prepaid interest. Each point is equal to 1% of the mortgage or loan amount. Points paid on a mortgage to buy or improve your principal residence are usually fully deductible in the year you pay them. You must amortize other points, such as points paid to refinance the mortgage on a principal home or to buy any other property, over the life of the loan.

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