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There are two kinds of points borrowers can pay when financing their home loan:
Origination points:Â These are charged by theÂ lender to cover the costs of the loan. They are not tax-deductible.Â
Discount points:Â These are actually pre-paid interest on the mortgage. The more points you pay, the lower the interest rate on the loan and vice- versa. Borrowers typically can pay anywhere from 0 to 4 points, depending on how much they want to lower their rates. This kind of point is tax-deductible.Â
Notes: Some fees charged by the lender do fall in the Originating bucket when a Good Faith Estimate is provided. They however are not considered the typical points covered above.