A dumb question. Sry.. What are points?

What is the difference between interest and points?

I was reading Express Home Buyers Loan Program, and they say there interest rate is 12% and 5 points.

What does that mean?

I will try to explain this as simply as possible.

Interest is the amortized rate that you will pay on a loan. Points are a one time fee that you pay for a particular rate/scenario.

When shopping for a mortgage, many lenders will quote you rates with points or you can ask for a rate with points.

Each point represents 1% percent of the amount you are borrowing. Generally, paying one point should lower the interest rate on a loan 1/4%, 2 points should lower your rate 1/2% and 3 points should lower the rate 3/4%. Lowering the rate reduces your monthly principal and interest payment.

In your particular case, with a HML, the points are in essence their fee for loaning the money.

Ok Thanks,

So based on a loan of $300000.

I’ll be paying $36000 in interest and $15000 for the points.

That sound correct?