Question 1

What are mortgage points?

Accepted Answer

Mortgage points are fees paid to the lender at closing, expressed as a percentage of the loan amount (one point = 1% of the loan). Types: origination points (fees charged by the lender for processing and underwriting the loan; these are the lender’s compensation for making the loan) and discount points (fees paid by the borrower to reduce the interest rate; one discount point typically reduces the rate by 0.25%). Example: on a $400,000 loan, one point = $4,000.

Question 2

Should a Florida borrower pay discount points?

Accepted Answer

Decision: the break-even analysis determines whether paying discount points is worthwhile. Calculate: monthly savings from the lower interest rate, divide the point cost by the monthly savings to find the break-even period. Example: 1 point costs $4,000, lower rate saves $100/month, break-even = 40 months. If the borrower plans to keep the loan longer than 40 months: paying the point is beneficial. If the borrower plans to refinance or sell sooner: the point is not worth paying. Factors: how long the borrower plans to keep the loan, whether the borrower has sufficient cash for closing costs, and current market rates (when rates are high, discount points may be more valuable).

Question 3

Are mortgage points tax-deductible in Florida?

Accepted Answer

Tax deduction: discount points paid on a purchase mortgage are generally deductible in the year they are paid (IRS Publication 936). Requirements: the points must be paid for the use of money (not for services), the points must be a customary practice in the area, the points must not exceed the amount generally charged, the borrower must use the cash method of accounting, and the loan must be used to buy or build the borrower’s primary residence. Points paid on a refinance must be deducted over the life of the loan (amortized). Origination points may or may not be deductible depending on what they cover.

Points (Mortgage)

Mortgage Points

Types

Break-Even Analysis

Tax Deduction

Related Terms

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