9.75% / 1 point. It looks like some new age math formula to the untrained eye but those who have been searching for a mortgage loan know otherwise. In actuality, "X% / Y points" is how Canadian mortgage lenders express a loan amount offer. Using the initial example above, most people understand that the 9.75% is the mortgage rate that will be applied to the mortgage loan. The "1 point" that follows is what stumps them. What about you?

Essentially, a mortgage point is a fee associated with the loan. However, it's not the same as the interest rate. While the interest rate is a cost a borrower incurs throughout the life of a loan for borrowing money, a point is a fee that some mortgage lenders require in return for extending a mortgage loan to a borrower.

Generally, one point is equivalent to 1% of the loan amount. Therefore, if a lender was willing to give you a $150,000 loan with 9.75% / 1 point terms, you would pay $1,500 in loan fees (150,000 x .01) to the lender. If the loan quote was 9.75% / 2 points, you'd pay $3,000 (150,000 x .02) and so on.

Mortgage loan points, unlike interest, must be paid when the loan is closed. Because of this, loan offers that include points are not advisable for buyers that are short on expendable cash. Buyers in this situation would fare better by looking for higher interest, no-point loans. They'll have higher mortgage payments but they'll also maintain more of their savings.

CompareMortgageQuotes.ca - Compare Mortgage Rates & Save
Toronto Mortgage - Ontario Mortgage - Ontario Mortgage Brokers