What Are Points?
A point is one percent (1%) of the mortgage loan amount. The first point that you pay for a mortgage is usually called an origination point. It is sometimes called a brokerage fee or a bank fee. Additional points charged are often to cover costs associated with a particular loan program. Lenders charge different amounts in points for different programs. In general, the more risky the loan is to the lender, the more they charge in points and/or fees.
The points are tax deductible because they are considered interest paid in advance. Any points you pay at closing on a new purchase are tax deductible in the year your purchase the new home. Points paid in a refinance must be deducted over time. For more detailed information on how points are deducted from your taxes, you should consult a tax professional.