Points and lender credits are funds you pay to the lender, or receive as a credit from the lender, based on the interest rate you choose; it’s basically a tradeoff in how you pay for your mortgage and closing costs. You can either pay for a lower rate or get a credit for a higher rate.
Points, also known as discount points, let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points can be good for someone who knows they will keep the loan for a long time.
Points are calculated in relation to the loan amount. Each Point equals 1% of the loan amount. The points paid to lower your rate can vary based on the market and the lender. The amount also may change daily, and sometimes intra-day, depending on market conditions and a lender’s pricing.
Lender credits work the same way but in reverse. You pay a higher interest rate, but the lender gives you money to offset your closing costs. When you receive lender credits, you pay less upfront, but you pay more over time with the higher interest rate. Lender credits can be good for someone who isn’t planning to keep their loan for a long time. The Lender credit to lower your upfront cost can vary based on the market and the lender. The amount may also change daily, sometimes intra-day, depending on market conditions and a lender’s pricing.