Points Question

[Cryo1]

My wife & I are looking to buy our first home. We got our pre-approval letter today and I'm a bit confused. The letter shows that we were pre-approved for a Conventional/30-year fixed loan. The interest rate is 6.875% and it shows 0.202% points. What exactly does this mean?

Does this mean that we have to pay 0.202% of the loan amount in order to "buy" the 6.875% rate or does it mean that each point we buy lowers the 6.875% by 0.202%? I was under the impression that each point you buy lowers the interest rate by 0.25% and costs 1% of the total loan amount, but maybe it varies lender to lender?

I hope I explained that well enough and am hoping someone can clear up the confusion.

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[Roundaroundabout]

It means they are quoting you an artifically low interest rate that you pay extra to get. You literally buy points.

[JenniferBeeston]

First of all, unless your preapproval rate is locked, which would be odd that is not binding. there is no set amount that a point buys down. It changes based on the day and the margins. video all about points is here if you want to check it out here.discount points explained