Can you explain positive and negative points?


Positive and negative points are the way the closing costs of a mortgage are dealt with. Points are percentage of the loan amount - 1 point equals 1 per cent of the loan amount.

Positive points are paid by the borrower in exchange of lower rate; that is, the rate is bought down. Negative points are paid by the lender; the borrower has small or no closing costs and accepts a higher rate in return.

Positive and Negative Points Examples

If you have a quote of 6.25% with zero points, you could get the rate down to 6% by paying somewhere between 1 to 2 points, roughly. Bear in mind, though - different lenders offer different buydown rates - sometimes to get the interest rate down with .250% you may pay less than 1 point, and sometimes you have to pay almost 2 points for the same rate decrease. It is advisable you shop a bit before you decide to go with particular lender.

The abovementioned example is about positive points. Negative points are in fact taking higher rate and getting cash from the lender. For example, if you are getting a quote with 6.25% with zero points as in the previous example, the lender may pay you somewhere between half a point and 1 point for the borrower to accept a rate of 6.375%. For rate increase of .250% a lender may pay between 1 to 2 points.

Are positive and negative points tax deductible?

Mostly, they are. If they are not deductible under discount points, they will be deductible under mortgage interest. Consult a tax professional for more information on positive and negative points tax deductibility.

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