What are Discount Points?
Discount Points are set by the Secondary Market. Discount points are charged based on loan to value, credit score and loan type. Each point is equal to 1% of the loan amount. When a lender sells the loan to the Secondary Market, these discount points are then paid by the lender to the Secondary Market entity. Secondary Markets are Fannie Mae, Freddie Mac, Ginnie Mae and can be private companies and individuals. Examples of Discount Points (these can change as the mortgage market changes): 0.25% of the loan amount for Adverse Market Conditions. 1.25% of the loan amount for Cash Out Refinance with LTV of 60.01-70% and Credit Score of 680-699. Discounts accumulate. The above example would have total discounts of 1.50%. There are different levels of discounts depending on the type of loan (first time home buyers, investment, condominium, manufactured home), the borrower's credit score and the loan to value (how much of the equity of the home is being borrowed).