A point on a mortgage is equal to 1% of the loan amount (i.e 1 point on a $300,000 loan would be $3,000). It is common to pay points in fractions, such as 1/2 point. Points are cash that is either paid out of pocket or added to your new loan amount. In theory, points are paid to lower your interest rate.
There are 2 different types on points that can be charged on a mortgage transaction. These are Origination points and Loan Discount points. Here is the difference
Loan Origination points
These are points that are paid as compensation to your lender or broker. It is far more common to see origination points when you are dealing with a mortgage broker, rather than a direct lender.
Loan Discount points
These are points paid to buy down your interest rate. 100% of this fee is to be paid directly to your new lender, with no portion to be paid as a commission to your broker. When dealing with a mortgage broker, it is very uncommon to see loan discount points without also having to pay a loan origination fee. When dealing with a lender, it is common practice to pay only discount points.
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