Have you heard of the term Discount Points? Discount points are called so because they discount the interest rate. A typical trade-off is 1 discount point for each .25 percent reduction in interest rate. You could get a 7.00 percent rate with zero points or 6.75 percent if you paid one discount point. If you're getting charged 2 discount points, then you should conversely get a rate .5 percent higher for zero points. If you're getting charged 3 points, I'll bet it's nothing more than more income for the loan officer, without a subsequent rate drop. A discount point is tax deductible because it's a form of interest. If you're paying 5 points on a loan, not only is it not interest, you're getting taken advantage of. If you're using a mortgage broker and there are points on the loan, those points are supposed to go to the lender, not the broker. It's not the broker that discounts the mortgage, the lender does.