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Real estate financeSubject 5 of 19

Points

Points are upfront loan charges in which each point equals 1 percent of the loan amount, and discount points are paid to buy a lower interest rate.

Direct answer

What does points mean?

Points are upfront loan charges in which each point equals 1 percent of the loan amount, and discount points are paid to buy a lower interest rate.

Exam cue: One point equals one percent of the loan amount. Read whether the question means discount points or another point-based fee.

What does it look like in a question?

Example

Two points on a $250,000 loan equal $5,000 because each point equals one percent of the loan amount.

Common exam trap

What should you not confuse it with?

A point is based on the loan amount, not the purchase price.

AmortizationAmortization is the repayment of debt through scheduled payments that reduce principal over time.Balloon paymentA balloon payment is a final payment that is substantially larger than the preceding scheduled payments.Debt serviceDebt service is the principal and interest a borrower must pay on a loan during a stated period, usually a year.EquityEquity is the owner's value in property after subtracting liens from the property's value for the calculation being used.ForeclosureForeclosure is the legal process used to enforce a mortgage lien after default and subject the property to sale or another court-ordered remedy.Loan-to-value ratioThe loan-to-value ratio (LTV) is the loan amount expressed as a percentage of the applicable property value or price.

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