Points, also called a "discount point", are a form of pre-paid interest. One point equals one percent of the loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated interest rate. Borrowers can offer to pay a lender points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment. For each point purchased, the loan rate is typically reduced by 1/8% (.125%).

Paying Points represent a calculated gamble on the part of the buyer. There will be a specific point in the timeline of the loan where the money spent to buy down the interest rate will be equal to the money saved by making reduced loan payments resulting from the lower interest rate on the loan.

Selling the property or refinancing prior to this break-even point will result in a net financial loss for the buyer, while keeping the loan for longer than this break-even point will result in a net financial savings for the buyer. The longer you keep the property financed under the loan with purchased points, the more the money spent on the points will pay off. If the intention is to buy and sell the property or refinance in a rapid fashion, buying points is actually going to end up costing more than just paying the loan at the higher interest rate.

Points may also be purchased to reduce the monthly payment for the purpose of qualifying for a loan. Loan qualification based on monthly income versus the monthly loan payment can sometimes only be achieved by reducing the monthly payment through the purchasing of points to buy down the interest rate, thereby reducing the monthly loan payment.

Discount points may be different from origination fee or broker fee. Discount points are always used to buy down the interest rates, while origination fees sometimes are fees the lender charges for the loan or sometimes just another name for buying down the interest rate. Origination fee and discount points are both items listed under lender-charges on the Closing Disclosure (CD).

The difference in savings over the life of the loan can make paying points a benefit to the borrower. If you intend to stay in your home for an extended period of time, it may be worthwhile to pay additional points in order to obtain a lower interest rate. Any significant changes in fees should be re-disclosed in the final Loan Estimate (LE).

Also directly related to points is the concept of the 'no closing cost loan'. If points are paid to acquire a loan, it is impossible at the same time for a broker bank or lender to make a premium for a higher rate. When premium is earned by making the note rate higher, this premium is sometimes used to pay the closing costs. Certain loan types will allow a gift from a relative for down payment and closing costs. Please consult with your mortgage loan originator for more information.

It is common for a variety of costs associated with the transaction (above and beyond the price of the property itself) to be incurred by either the buyer or the seller. These costs are typically paid at the closing, and are known as closing costs. Examples of typical closing costs might include

• Attorney (Lawyer) Fees, paid by either or both parties, for the preparation and recording of official documents. The principals and/or lender may each be represented by their own attorney. Typically required by institutional/commercial lenders to ensure documents are prepared correctly.
• Title Service Cost(s), paid by either party according to the contract but by default seller may pay the majority, for title search, title insurance, and possibly other title services. In some cases the attorney may do the title search or the title service and attorney fees may be combined. Required by institutional/commercial lenders and often by the real estate contract.
• Recording Fees, paid by either party, charged by a governmental entity for entering an official record of the change of ownership of the property. Required by the government for recording the deed.
• Document or Transaction Stamps or Taxes, paid by either or both parties depending on location (area of jurisdiction), charged by a governmental entity as an excise tax upon the transaction. Required by law.
• Survey Fee for a survey of the lot or land and all structures on it, paid by either party, to confirm lot size and dimensions and check for encroachments. Required by institutional/commercial lenders.
• Brokerage Commission, paid by the seller to a Real Estate Broker, to compensate the Broker(s) involved in the sale for their services in marketing the property, finding a buyer, and assisting in the negotiations. Brokerage commissions are usually computed as a percentage of the sale price, and are established in a listing agreement between the seller and the listing broker. The listing broker may offer Buyer Agents a portion of their commission as an incentive to find buyers for the property. Payment is required if real estate brokerage service was used. This is often one of the largest closing costs.
• Mortgage Application Fees, paid by the buyer to the lender, to cover the costs of processing their loan application. In some cases, the buyer would pay the lender the application directly and prior to closing, while in other cases the fee is part of the buyer's closing costs payable at closing.
• Points, paid by the buyer to the lender. Points are a form of pre-paid interest, charged by the lender as an alternative to charging a higher rate of interest on the mortgage loan. One point equals one percent of the loan principal.
• Appraisal Fees, usually paid by the buyer[citation needed] (although occasionally by the seller through negotiation), charged by a licensed professional Appraiser. Many lenders will require that an appraisal be performed as a condition of the mortgage loan. The purpose of this appraisal is to verify that the sale price of the property (upon which the underwriting of the loan is based) is equal to or less than the fair market value of the property.
• Inspection Fees, usually paid by the buyer[citation needed] (although occasionally by the seller), charged by licensed home, pest, or other inspectors. Some lenders require inspections (such as termite inspection) to verify that the property is in good condition, which is necessary to assure that the property will retain the necessary collateral value to secure the mortgage loan.
• Home Warranties, paid by either the buyer or the seller. Warranties are available on resale homes insuring major household systems against repair or replacement for the buyer's initial year of ownership. Sellers will sometimes offer these warranties as a marketing strategy, or buyers can elect to purchase them at closing.
• Pre-paid Property Insurance, paid by the buyer but may be reimbursed by the seller. Lenders will typically require that a mortgaged property be insured at all times throughout the life of the mortgage, and will usually require that the first full year's property insurance premium be paid in advance by the buyer. If the buyer has not already paid the insurance company directly, this would become another closing cost payable at closing.
• Pro-rata property taxes, paid by the seller, the buyer, or both. Most (but not all) jurisdictions assess taxes on real property, which are usually payable at a specified date annually. Since all but a tiny fraction of real estate transactions close on a date other than this one specified annual date, most transactions must include an adjustment to assure that both the seller and the buyer end up paying their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property. Usually required by institutional/commercial lenders and by the real estate contract.
• Pro-rata Homeowner Association Dues, paid by the seller, buyer, or both. If the property is covered by a Homeowner Association (HOA), the HOA will normally be funded by dues assessed against each property owner. Again, since the ownership of the seller and buyer are each fractional in the year of the transaction, there must be an adjustment made so that each owner pays their proportional share. Often required by institutional/commercial lenders and by the real estate contract.
• Pro-rata Interest, paid by the buyer but may be reimbursed by the seller. The monthly mortgage payment is calculated and payable on a specified day each month. If the closing does not actually fall on that specified date (which is usually the case), then an adjustment must be made to calculate the interest on the loan for the number of extra days until the first payment is due.

Other items in addition to the above may be common in some jurisdictions, and some transactions may include unusual or unique items as closing costs. In the United States, Federal law requires that all residential transactions financed by a mortgage have all closing costs documented in detail upon the standard Closing Disclosure. This information must be provided to the principals but does not have to be sent to the government. Instead a Declaration or Statement by Buyer and/or Seller is often required to be provided to the government office recording the deed. Form 1099-S may be required to be sent to the United States Internal Revenue Service, but Federal law does not allow a charge for this.