One of those deductions, that for points, is very complex and deserves more attention. When you obtain a home mortgage, whether for a home purchase or a refinancing, a lender often will charge you points. These points can be called by different names, such as loan discounts or origination fees. The payment is usually upfront, in cash, since it generally is not included in the loan amount. Each point that you pay is equal to 1 percent of the mortgage loan amount.
Lenders have to take risks.
They are lending money to strangers, who may or may not be able to pay them back in full. But houses can and have decreased in value, which makes the lender's security potentially more risky. Depending on the deal you negotiate, either the buyer or the seller may pay the points. The Internal Revenue Service treats these two situations slightly differently. Buyer-Paid Points Points paid to obtain a new mortgage are fully deductible in the year they are paid by the borrower.