Rates & interest

Discount points

Optional upfront fees paid to lower your interest rate. One point costs 1% of the loan and usually reduces the rate by about 0.25%.

Sources

What does discount points mean?

Buying points is prepaying interest to secure a lower rate: one point costs 1% of the loan and typically shaves about 0.25% off the rate. Whether it pays depends on how long you keep the loan — divide the points cost by the monthly saving to find the break-even month. Stay past it and points win; sell or refinance sooner and you have overpaid.

A points example

One point costs 1% of the loan and typically lowers the rate by about a quarter of a percentage point, though pricing varies by lender. On a $400,000, 30-year loan:

A points example
	No points	One point
Upfront cost	$0	$4,000
Rate	7.25%	7.00%
Monthly principal & interest	$2,729	$2,661
Monthly saving	—	$68
Break-even	—	about 59 months

When points pay off

Points make sense only if you keep the loan past the break-even point — here, about five years. Sell or refinance sooner and you have paid for savings you never collect. If you expect rates to fall and plan to refinance, keeping the cash is usually the better bet.

The reverse also exists: lender credits (sometimes called negative points) give you cash toward closing costs in exchange for a higher rate. Points may be tax-deductible as mortgage interest; ask a tax professional how they apply to you.

Frequently asked

Are mortgage points worth it?

It depends how long you keep the loan. Divide the points’ cost by the monthly payment saving to find the break-even month; stay past it and points save money, sell or refinance sooner and you have overpaid. They favor buyers who hold the loan for years.

How much does one point lower your rate?

Roughly 0.25% per point, though it varies by lender and market. One point costs 1% of the loan — $3,000 on a $300,000 mortgage — and might drop a 7% rate to about 6.75%.