What percentage does a point represent in relation to a loan?

A point in relation to a loan typically represents 1% of the total loan amount. This is a standard practice in real estate financing, where points are used to quantify costs associated with obtaining a loan, particularly as it relates to mortgage origination fees or discount points. When a lender charges points, it is often to either cover the initial costs of processing the loan or to lower the interest rate on the loan. For example, if someone takes out a loan for $200,000 and the lender charges 2 points, the borrower would pay $4,000 (which is 2% of $200,000) upfront. Understanding this concept is crucial for both buyers and sellers in the real estate market to evaluate the true cost of financing a property.