A point is an amount equal to one percent of the principal amount of a loan. When you receive your quote, you will notice that it comes in three parts. For example, 8 ½ percent, 1 ½ plus 1.

8 ½ percent is the interest rate your mortgage note will carry. This is where you will make your payments, amortized over the years you select (15 or 30 years).

1 ½ are discount points. One discount point equals 1 percent of your loan balance. For example, this is $1500 on a $100,000 mortgage. This money is paid at your closing directly to the investor who lends money. This gives the investors what they want to earn on this investment, along with the 8 ½ percent you pay on the mortgage.

The past of the quote (1) is the origination fee. It is 1 percent of the loan balance and is what your lending company collects for their work. This amount can vary. In some areas of the country, this discount points and origination fee are added together when you receive a rate quote.