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Simple English definitions for legal terms
mortgage discount
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A quick definition of mortgage discount:
Term: Mortgage Discount
Definition: A mortgage discount is the difference between the amount of money borrowed for a mortgage and the actual amount the lender sells the mortgage for. It is an upfront fee charged by the lender at the time of closing to cover the costs of financing. This fee is also known as a point, mortgage point, loan-brokerage fee, or new-loan fee. Usually, the buyer pays the discount, but in some cases, the seller may be required by law to pay it, such as with a VA mortgage.
A more thorough explanation:
A mortgage discount is the difference between the mortgage principal and the amount the mortgage actually sells for. It is an up-front charge by a lender at a real-estate closing for the costs of financing. This charge is also known as a point, mortgage point, loan-brokerage fee, or new-loan fee.
For example, if a homebuyer takes out a mortgage for $200,000 but the lender only gives them $195,000, the mortgage discount is $5,000. This amount is usually paid by the buyer, but in some cases, the seller may be required by law to pay it, such as with a VA mortgage.
The mortgage discount is an important factor to consider when taking out a mortgage because it can affect the overall cost of the loan. The more points a borrower pays, the lower the interest rate on the loan. However, paying more points upfront also means higher closing costs.