How does a mortgage differ from other types of loans?

A mortgage is a secured loan. When you get the loan, you pledge a property (the house you're buying) to the lender to back up your promise to repay the debt. On the other hand, personal loans are generally backed up only by the borrower's signature and past credit history, and carry a higher interest rate. Since real estate tends to hold its value better than other forms of property (such as a car or a boat), a home is a valuable security for a lender. That's why the lender is willing to lend you a large amount of money at a relatively low interest rate.

What are discount points?

Discount points are charged by mortgage lenders as part of the cost of getting a loan. Each point is equal to 1% of the loan amount. In most cases, the charge is not for any particular service but is additional interest on the loan. Therefore, points add to the effective interest rate on the loan. Points on loans to buy a house may be deductible as mortgage interest from your taxable income, provided certain conditions are met. In refinancing, the deduction for points must be spread out over the life of the loan.