A seller-paid point is an offer made my a seller that includes an asset or cash offer means to rebate part of the purchase price. These are most commonly offered by the seller of a home to the buyer as a way to reduce the interest the buyer has to pay on the mortgage. These kinds of deals are attractive for their tax advantages, because it can be deducted from the buyer’s income taxes as mortgage interest.
Because most buyers are going to use mortgage financing to buy a home, they will have to pay an interest rate proportional to the amount they borrow. When seller points are added to this, they effectively increase a buyer’s down payment and reduce the interest rate paid on the debt. The IRS also considers seller points as interest paid by the buyer of the home, which reduces the buyer’s tax liability. In the end, this makes seller points more valuable than just a discount of the same amount, because a $5,000 seller point contribution could end up having the same effect in reducing your monthly payment as a $13,000 discount on a listing price. For this reason, buyers should be made aware of this as a bargaining tactic, because it is something that can help their payment a great amount and could be more feasible for a seller to accept.