What do "points" refer to in mortgage lending?

In mortgage lending, "points" typically refer to fees paid to a lender at closing in exchange for a lower interest rate on the loan. This practice is often considered a way to "buy down" the interest rate, allowing borrowers to reduce their monthly payments over the life of the loan. Each point generally equals one percent of the total loan amount, and paying points can be advantageous for borrowers who plan to stay in their homes for a long duration, as the long-term savings from a lower interest rate can outweigh the upfront cost incurred at closing.

While discount fees can be associated with points, the primary understanding in this context is that points directly relate to the fees for reducing the interest rate, making this the most accurate choice. Other options, like late fees and legal fees, do not pertain to points in the context of mortgage lending and thus do not align with the established definitions within the industry.