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A point is prepaid interest the the lender requires at the start of a mortgage in exchange for a rate below the current cost of money. A point is equal to one percent of the loan amount, as an example, a $200,000 mortgage x 1% = $2,000 or one point. Either the buyer or the seller can pay points in exchange for a lower interest rate for the life of the loan. The buyer can also benefit on their income taxes when points are paid.
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