If you have never refinanced before, you may be wondering exactly what lenders mean when they start talking about points. To make sure that you are able to follow what they are saying and make wise borrowing decisions when it comes to your Illinois refinance loan, you will need to find out exactly what points are and how they work.

What Are Points?

Points are charges that must be paid on an Illinois refinance loan. Though these charges are usually paid at closing, they shouldn't be confused with closing costs, which are separate charges. One point is equal to one percent of your loan. For example, if you get an Illinois refinance loan for $100,000, one point would be equal to $1,000.

Paying Points

Different lenders charge different points, so it is very important that you compare these figures when you compare interest rates. You should also know that you can negotiate the amount you pay in points. If you pay more points, you lower your interest rate. Most lenders will reduce your interest rate by a quarter of a percentage for every point you pay. Average rates and points on a 30 year Chicago refinance are 6.45 and .03 respectively.

Reaping the Tax Benefits

Just like mortgage interest, the amount that you pay for points is tax deductible. The points you paid during your Illinois refinance can be deducted in the year in which they were paid. Your lender should send you a form, known as a 1098 statement, at the end of the year indicating exactly how much you paid in points. In most cases, you should be able to use this amount to get a health deduction. To learn more, you can contact your accountant or visit the IRS online.