And the payment is usually upfront, in cash, at settlement. Each point you pay is equal to 1 percent of the mortgage loan amount.
Lenders have to take risks.
They are lending money to a stranger, who may or may not be able to pay the loan in full. But houses can decrease in value, which makes the lender's security potentially risky. It may be possible to get a better interest rate or fewer points from another lender. Refinance points, on the other hand, generally are not deductible in full for the tax year in which they are paid. Rather, the IRS requires that you allocate the points by the number of years of your mortgage loan.