Loan Points (Loan Origination Fees or Loan Discounts) are a fee charged to a borrower by lending institutions for the privilege of obtaining a loan. Each point is equivalent to one percent of the amount borrowed. Generally, the greater the risk to the lender, the larger the loan origination fees and the higher the loan interest rate.

Loan-origination fees are usually paid up front in cash when you obtain a loan or mortgage. As a borrower you want to obtain the lowest interest rate with the least number of loan points. If you do not wish to pay upfront points, you can often obtain a loan with no loan origination fees.

Loan points paid to purchase a home are deductible. Origination fees of income porperty mortgages and refinancing mortgages, must be deducted over the over the term of the mortgage. If you pay off the balance of the mortgage early, you can deduct all unused points in that year.

For example, you obtain a 30-year mortgage for $100,000 and pay 1 point. To obtain the loan, you are required to pay 1 point or $1,000 up front. You are allowed to deduct 1/30th of this amount each year or $33.33.

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Before you buy an investment property it is critical that you create your own projection of the property's profitability. Real-Estate-Proforma.com has a quick-proforma with which you can calculate real estate financial statistics such as Internal Rate of Return, Capitalization Rate, Cash-on-Cash, Debt Multiplier, Loan-to -Value Ratio, Debt Coverage Ratio, and Mortgage Payments. You can use this JavaScript proforma to project the profitability of a real estate project. By becoming a member you will receive access to a number of Excel real estate proformas. membership | services

If you are analyzing another person's proforma, or you are examining a prospectus for a real estate deal, it is very important that you read the document carefully and determine how the values of the financial statistics above are being calculated. For instance, values such as the Cap Rate may be determined from overly optimistic projections of the future rental income of a property.

You can "reverse engineer" the financial projections you receive from a prospectus and/or request the Excel (or other type of) spreadsheet a developer used to create their proforma. A very useful Excel or Visual Basic macro used to check Excel formulas is available in the spreadsheet below for download. Download Mortgage Formula Excel Spreadsheet

The due-diligence you do on a potential investment may uncover a number of potential problems with a real estate deal and we suggest you research each real estate investment very carefully. There are a variety of real estate financial consultants who can help with this, but if you are like many Real-Estate-Proforma.com members, you can or are learning to do your own due-diligence.

We hope you become a more successful real estate investor by using this site! membership | services