In mortgage terms, what are points?

Points, in mortgage terms, refer to fees that a borrower pays to the lender in order to reduce the interest rate on a mortgage. This concept is also known as "buying down the rate." By paying points upfront, which are typically calculated as a percentage of the loan amount, borrowers can lower their ongoing monthly interest payments over the life of the loan.

For instance, if a borrower pays one point on a $200,000 mortgage, that would amount to $2,000. In exchange, the lender may reduce the mortgage interest rate, allowing the borrower to potentially save money in the long term by lowering the total interest paid over the term of the loan.

The other options deal with aspects of mortgages but do not accurately define points. Late payment costs reflect penalties for being behind on payments, down payment percentages relate to the initial cash a buyer puts towards purchasing a property, and property inspection costs are related to assessing the condition of a home prior to purchase. None of these factors come into play when discussing points in the context of mortgage financing.