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Lenders give people, who want to find out how much their mortgages cost, quotes that include both loan rates and points.

What is a point?

It’s a fee equal to 1 percent of the loan amount.

A 30-year, $150,000 mortgage might have a rate of 7 percent but come with a charge of 1 point, or $1,500.

1, 2 or even more points could be charged by a lender.

Two kinds of points are known- discount and origination.

Discount points are prepaid interest on the mortgage loan. The less points you pay, the higher the interest rate on the loan and vice versa. Depending on how much borrowers want to lower their rates they typically can pay anywhere from zero to 3 or 4 points. Discount point is tax-deductible.

Origination fee is charged by the lender to cover the costs of making the loan. If the origination fee was used to obtain the mortgage and not to pay other closing costs it is deductible. The IRS specifically states that the fee is not deductible if it is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs and inspection fees.

Whether to pay points and how many depends on many factors: how much money you have available to put down at closing and how long you plan on staying in your house.

Choose the zero-point option on your loan program if you need the lowest possible closing costs.