Points are an origination fee charged by the lender. In many cases, you may be able to negotiate these down, especially if you’re a strong borrower and the lender is desperate enough.

The APR (annual percentage rate) is an estimated true cost of the loan. In other words, it not only includes the estimated interest you will pay over the life of the loan (in your case @ 6.25%), but also includes the origination fee (points) and other fees you will pay. The APR is designed to “help” borrowers compare loan products from a range of lenders. The actual APR will probably be higher, especially if you only hold the property for a few years or refinance within a short period of time.

That’s a lot of closing costs. The 1.125% is an origination fee of $3273.75, that’s what you are paying your broker/lender/whomever is doing the loan for you. I know it’s not a buy down because if it was your rate would most certainly be lower. Yes you will have to come up with $539.04 at closing on top of the fees you are financing. (the additional financed closing costs is where the apr comes in). You should get another estimate because the APR sounds too high and there must be a lot of junk fees in there. Show the hud 1 or estimated settlement to another broker and see if they can save you some money.

This link might help you sort out what is what.