In real estate transactions, what do points refer to?

Points in real estate transactions refer to a percentage of the loan amount, typically expressed as a percentage of 1% of the loan's total value. This concept is important because points can be used to lower the interest rate on a mortgage or to cover closing costs. Borrowers can pay points upfront at the time of closing, which effectively increases the origination fee but may decrease monthly mortgage payments over time.

For example, if a borrower takes out a $100,000 loan and pays two points, they would pay $2,000 at closing to secure a lower interest rate. This practice is commonly seen in mortgage financing, as lenders offer such arrangements to make their loans more appealing. Therefore, understanding points is crucial for anyone involved in real estate transactions, as they can affect both the immediate costs and long-term financial implications of a mortgage.