Define Mortgage Points

Origination Points

• Origination points are charged as part of the costs to create the loan.
  
  

Discount Points

• You can chose to pay discount points to get a lower interest rate. Each point you pay usually reduces the interest by 0.25 percent.
  
  

Discount Points Advantages

• Discount points are most worth paying if you plan to stay in your home for several years because you will pay a lower rate of interest. The break-even point for discount points is usually about five years.
  
  

Tax Deductions

• You can deduct discount points on your income taxes. Origination points are tax deductible as long as they were not paid for things such as lawyers' fees or notary fees. You can deduct points regardless of whether you pay them or the seller pays them.
  
  

When to Deduct

• If you take a first mortgage, the points are deductible in the year that you pay them. If you refinance, you can still deduct the points, but you must deduct them over the life of the loan rather than up front.