Points are the charges paid by a borrower and/or seller to a lender to secure a loan. They are also called:
• Loan origination fees (including VA and FHA fees)
• Maximum loan charges
• Premium charges
• Loan discount points
• Prepaid interest
Only points paid as a form of interest (for the use of money) can be deducted on Schedule A.
Generally, points must be spread over the life of the mortgage. However, if the loan is used to buy or build a taxpayer’s main home, the taxpayer may be able to deduct the entire amount in the year paid.
Points paid to refinance a mortgage are generally not deductible in full the year they were paid, unless the points were paid in connection with the improvement of a main home and certain other conditions are met.
Beware of certain charges that some lenders call points. Points paid for specific services, such as appraisal fees, preparation fees, VA funding fees or notary fees, are not interest and are not deductible.