Definition: The term "mortgage points" refers to a fee charged by lenders on certain types of mortgages. These fees are typically used to offset the interest that would have been paid if the borrower had made fewer payments upfront. Mortgage points can be charged either as a one-time or an annual fee, and they are usually applied to any type of mortgage, including a conventional loan, an adjustable-rate mortgage (ARM), or even a home equity loan. The amount of mortgage points charged varies based on the length of the loan, the interest rate, and the borrower's credit score. Mortgage points can be advantageous for borrowers who want to lower their monthly mortgage payments but still pay more than they would have if they had made fewer payments upfront. They can also be used as a way to negotiate lower interest rates from lenders, which can make it possible to take out a larger loan with lower monthly payments. However, mortgage points can also be problematic for borrowers who are already paying too much in total, and who want to avoid the additional charges that come with having them. In some cases, lenders may charge mortgage points as a penalty rather than as a fee. Overall, mortgage points are an important part of the mortgage process for many borrowers, but they should never be used as a reason to reduce the amount of monthly payments required or to take out a larger loan with lower interest rates.
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