Many lenders use the term 'points' rather loosely...with out providing specifics as to the type of 'points' they are charging. Are they Origination Points or are they Discount Points? And what's the difference?

We'll keep it simple. You may know that a 'point' is one percentage point of the loan amount. For example, on a $150,000 loan one point would be $1,500.

The two types of points are Origination and Discount Points. Origination points are charged as a fee for a service performed (originating the loan for the lender or broker). Discount Points, however, are used to 'buy a rate down' to a lower interest rate that would otherwise not be available. Origination Fee and Discount Points are both items listed under lender-charges on the HUD-1 Settlement Statement.

The difference in savings over the life of the loan can make paying discount points a benefit to the borrower. If you intend to stay in your home for an extended period of time, it may be worthwhile to pay additional points in order to obtain a lower interest rate.